Upbeat Chinese data boosts oil bets, Dollar sinks

2017年7月17日

The Asian session has paved an upward trend for commodities and stock markets after the release of spectacular figures on the Chinese economy. The growth in industrial production and retail sales, the two key drivers of the economy exceeded expectations, while GDP for the second quarter grew by 6.9% compared to the same period last year. Chinese data has direct translation to the Australian economy, one of China's key partners, which stirred growth of Aussie despite RBA holding rates low at the previous meeting. There is a divergence in the RBA policy and market outlook on monetary support and investors are likely to sell the fact of Central Bank's rate increase at the next meeting. AUDUSD continues to hit the peak after peak, holding steady at a two-year high at 0.7825 on Monday.

Upbeat Chinese data suggests Central banks’ policymakers will be able to write off the impact of external risks considerably when forecasting policies and making monetary decisions. And if the Fed's caution fits with weak wages, in retail sales and underperforming inflation, for ECB it is much more difficult to restrain market optimism, as the current stimulus looks unreasonably bloated for the observed economic performance.

However, the ECB has its own goals and plans. The elusive 2% of target inflation, which is still so far, is likely to force Mario Draghi at a meeting on Thursday to break the hearts of investors who made a bet on the fast tapering of monetary support. The current growth of EURUSD means only the weakness of the dollar, but caution for the euro, as confidence in European bank decisions would allow the pair to leave 1.15 level behind. The number of euro bets grew according to the CFTC data - net position increased from 77.5K to 83.8K in the week ending on July 14th.

Combining recent ECB comments with European statistics we have the following picture: the ECB has focused exclusively on inflation and wants to see its steady growth to the target level. And since it is still significantly behind (1.3% in June), the sounding of plans to reduce stimulus probably will not happen on Thursday.

Across the Atlantic, weak inflation, retail sales, Yellen's dovish tone thwarted the growth of the dollar. The June CPI fell to 1.6% with a forecast of 1.7%, which caused the dollar to fall and the uncertainty in the Fed's policy grow. The chances of a rate hike in December fell to 47.1%, indicating a rebound in bullish sentiment. The investigation of Trump's relations with Russia was supplemented by new details, reinforcing political instability in the US, creating pressure on the dollar and US stock markets. Futures on the dollar fell to the level of 95.00.