Data from China worsens moods. Juan weakens

Yesterday the EURUSD corrected the upward move from Friday, which was triggered by the publication of the NFP. The low was set at around 1.0930. Today in the morning the main currency pair gained slightly. Yesterday, stock market sentiment was weak and Wall Street indices were falling, although in the end the decline did not exceed 1 percent. The decline is partly due to yesterday’s weak Chinese export data, which sparked concerns about the global economy. Today the macro calendar is poor again. The market awaits tomorrow’s US inflation report.

Yesterday’s data from China indicated that exports are in a clear downward trend. Exports shrunk by 14.5%. y/y imports by 12.4%. y/y The “boom” of the Chinese export sector related to the pandemic is coming to an impressively fast pace. On the one hand, this comes at an unfortunate time as it coincides with weak domestic demand, amplifying and amplifying the negative economic effects. On the other hand, this does not bode well for the Chinese currency. The weaker yuan helps to increase the price competitiveness of Chinese exporters in the global market and may to some extent mitigate the slowdown in exports. However, a marked depreciation of the yuan may further strengthen the tendency of domestic private capital to leave China.

Falls in the stock exchanges

At yesterday’s session, Hang Seng dropped from above 19,500 points. and set minimums around 19,065 points. The discounts amounted to 1.81 percent. Today we can see a slight rebound, but there is no clear demand. The Shanghai Composite lost just 0.25 percent. Today, the declines are continued and the index is “under the line” of almost 0.6 percent.

Returning to the main currency pair – this one managed to 100 percent. reduce Friday’s gains. The euro did not receive any support from the macro data. The price pressure in the euro zone is weakening, which means that the next ECB interest rate hike seems not as certain as it was recently. The ECB’s monthly consumer expectations survey showed that inflation expectations in this group continued to decline. It also showed that they still expect price growth to remain above the institution’s target over the next three years.

Eurozone inflation

The central bank is likely to remain concerned about inflation in the euro zone, while hoping that the positive developments will continue. In contrast to the situation in the US, the economy in the euro area is weakening, which may put pressure on the single currency. If inflation continues to move in the right direction, speculation about rate cuts in the euro zone could be fueled again.

The dollar is benefiting from the weak sentiment to some extent. Friday’s NFP data were not so weak that they could weaken the USD more. The market’s reaction was understandable, but you can see how this move was short-lived. The apparent cooling in the labor market is apparently still too weak to quell fears of inflation. Combined with the still fairly solid economic data, which is likely to cast doubts about a recession in the US, the case for an imminent rate cut in the US is not very convincing.

However, tomorrow’s US CPI release for July may change this picture to some extent. The market consensus assumes the same result as in June in the case of the core reading (4.8% y/y). In turn, the headline index, which takes into account the prices of energy and food, is to grow even from 3 percent. up to 3.3 percent on a year-on-year basis. The month-to-month change is also expected to remain unchanged at 0.2%. Lower numbers should weaken the dollar and push the major currency pair back above 1.10 and move away from the uptrend line where it is currently at.