China, UK, US Data To Define Sentiment

The economic data in China was disappointing last week. The consumer inflation fell unexpectedly to 1.3% year-on-year from 1.8% previously. The imports tanked by 5.4% year-on-year to August, suggesting that the domestic activity in China has not started improving just yet. We have a crowded macro calendar in China for the week ahead: the industrial production, Foreign direct investment and retail sales will be under a close watch. The expectations are flat. Any positive or negative surprise could trigger a move in the Australian dollar and commodities.

The AUD/USD refrained from extending gains above 0.7730 last week.

Following an aggressive sell-off in Friday’s session, the pair stepped below its weekly ascending trend channel. The 0.7588, which corresponds to the 50-day moving average and the major 61.8% retracement on August 31st to September 8th rise, should distinguish between a rebound to 0.7730/0.7750 region and a bearish consolidation toward 0.7490 and 0.7433, the 100 and 200-day moving averages respectively.

In the UK, the inflation and the unemployment data will be in focus. The labour data is expected to remain flat yet the inflation data, due on Tuesday is going to be an important gauge as it is expected to have picked up after the Bank of England boosted the monetary stimulus post Brexit.

A positive surprise in the inflation data would give a hand to GBP bulls and help reversing the recent losses in Cable.

Yet a negative surprise in inflation figures will hardly boost expectations of a UK rate cut in the coming months. Henceforth, the downside is expected to remain limited.

Across the Channel, the Eurozone CPI data will be in focus. The inflation in the Eurozone is expected to remain flat with 0.1% monthly change anticipated. The core inflation is seen flat at 0.8% on yearly basis. After the European Central Bank disappointed on last week’s meeting – by NOT announcing an extension in the current asset purchases program due to end on March 2017, we have seen the EUR/USD gaining some momentum on the upside. The EUR/USD has certainly room to extend gains toward 1.1445/1.1500 and zone and get the mid-term investors considering a mid-term recovery toward 1.1616 (2016 high). Yet of course, the momentum in EUR/USD would also depend on the USD leg. In case of a global rebound in the Fed expectations due to a better US data, we could see fresh long positions building in the US dollar ahead of the September 22 FOMC decision. In this respect, we will keep an eye on the US retail sales and the most recent industrial and manufacturing production data due on Thursday and the US inflation report due on Friday.