FED goes hawkish, PBOC more Dovish!
While the new week starts with weaker than expected Chinese data, last week ended with weaker than expected US retail sales numbers. Today bond and stock markets in the US were closed to commemorate the Martin Luther King Jr. Day holiday. Therefore the lack of liquidity and traders could not move the futures markets as well.
Today's surprise was from China. We had very mixed data from the second largest global economy. Great GDP and weaker than expected Retail Sales. However, weakness in retail sales confirmed the terrible effect of coronavirus restrictions on consumer spending and domestic demand and encouraged the PBOC to cut the ten basis points for some key lending rates and surprise the markets with its such a dovish decision, while other central banks including FED, moving towards hawkish policies. We have to know that, last week's Chinese inflation numbers were under 2%, and it means that the Chinese Central bank still has room for more supportive policies.
While a holiday in the United States caused softer trading, new decisions in China, helped the Shangai Exchange to close higher by a 0.58% gain, but the Chinese Yuan became weaker. USD/CNH today traded lower by 0.06%.
According to the published data, as we can see, retail sales in December increased 1.7%, much lower than 3.9% in November and 3.7% market expectations. However, this weakness in domestic demand was not enough to stop GDP to increase, as export has been increasing rapidly in December. Chinese exports increased by 20.9%, more than 20.0% estimates. At the same time, Industrial production was fare better to confirm that the whole economic growth of 4.0% in the fourth quarter is understandable.
On the US front, last week's retail sales numbers were much weaker than expectations to hit a new low since February last year, recording -1.9%, far less than the market expectations. According to the US Census Bureau's report, non-store retail performed the worst by -8.7% decrease, followed by home furnishing stores sales decrease by -5.5%, and then sporting goods, musical instruments, and bookstores are in the next levels. Elsewhere, grocery retailers, building materials, garden equipment suppliers, and health and personal care stores recorded a 1.8%, 0.9%, and 0.5%, increase respectively
From the technical point of view, this fundamental pressure on the Chinese Yuan is visible in the technical chart as well. As we can see in the bellow daily chart. USDCNH had strong support at 6.36, which is broken. EMA crossing strategy, with RSI at 36 and decreasing OBV trend line also supporting the bears.
