China Tribulations

USD:  Pending home sales data is released  at 14:00 GMT  but is not a major risk event for the dollar. Housing has been one of the stronger points of the US recovery although on some measures the pace of improvement has slowed down recently.

JPY: Industrial production and labour market data are seen on Tuesday. The stronger than expected inflation data last week proved to be welcome last week, suggesting some success for the government’s reflation policies.

Idea of the Day

There was a cautious tone to markets overnight on the news that China is to look more closely at the rise in government borrowing over recent years. There have long been concerns that the steps China took a few years ago to counteract the impact of the global financial crisis has left it with a legacy of debt, much of it disguised in the ‘shadow banking’ sector and the local government.  The issue has been a lurking danger for the global economy and FX markets for some time now but as is common with debt problems, they can be hidden from sight. But after the money market crisis a few weeks ago (when lending rates were allowed to surge) it’s clear that it is hitting the headlines more frequently. The yen is firmer again overnight and it’s noticeable how it is trading a little more like the safe haven currency it once was and is less sensitive to the tone of domestic data.

Latest FX News

JPY: The yen is firmer for a third consecutive session so far on the back of weaker stocks with the ripples from the news in China playing their part. Retail sales data were weaker, falling 0.2% compared to expectations for 0.8% rise. This runs against the grain of better economy news seen last week.

CNY: The Chinese government has reportedly ordered a nationwide review of government debt. The news has hit stocks in Asia on concern that the authorities are becoming more actively concerned regarding the credit boom that has taken place over recent years.

USD: The dollar is focused on the results of the FOMC meeting on Wednesday and the employment report on Friday.  The Fed meeting is not seen starting the process of ‘tapering’ but as always the focus will be on the tone of the statement. The jobs data remains crucial in the Fed’s tapering decision.  The dollar index is currently very close to 5 week lows.

EUR: The underlying tone to the single currency remains relatively decent. Going into the European session, the 1.33 area continues to provide resistance on EURUSD, although light selling being seen initially.

Further reading:  EURUSD: Pressure Builds On The 1.3415 Level

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