Monday started with crucial macroeconomic data from the second largest world’s economy. Chinese imports fell faster than it was previously expected (-7.6% versus +5.0%) and exports volume was also in red (-4.4% vs +3.0%). Nevertheless, the total trade balance surplus widened the positive gap in December to 57.06B versus 51.43B forecasted and compared to 44.71B previously. The initial market’s reaction was to buy put options for USD/CNY, however, Chinese Yuan weakened as the result of Asian trading session, pushing USD/CNY rates even higher to 6.77 yuan per dollar. Another interesting even noted during Asian trading session was inflation reports in India which showed a lower pressure of 3.80% year-on-year compared to 4.40% of economists’ forecasts. Indian Rupee was also declining on Monday. European Industrial Production report was released weaker-than-expected, adding selling pressure on EUR/USD. The most popular currency pair charted a deadly doji cross on the daily timeframe, signalling a start of four-day losing streak throughout the rest of the trading week. American economic calendar was completely empty and US dollar was trading more on a principle of ‘no news is good news’, strengthening versus its major peers.
Tuesday brought several updates on the macroeconomic front for New Zealand. NZIER institute published its economic survey, pointing to tough business confidence environment as well as lower capacity utilization and uncertainty of inflation. The kiwi was among the weakest currencies last week as NZD/USD traders were buying put options, pushing the pair lower to 0.6735 as the weekly result. Tuesday was not so active for the pair, but also in red. Japan published M2 Money stock index and machinery orders report, both soft. USD/JPY was moving mainly in one direction on strong demand for call options. The European trading session was active as France, Spain and EU reported inflation figures and trade balance, respectively. EUR/USD remained under the selling pressure as most of the reports were exactly in line with the expectations. Tuesday was a big day for the British pound as UK Parliament voted down Theresa May’s Brexit deal. The initial reaction was noticed on the put side for GBP/USD, however, traders changed their mind, buying call options with a huge volume when GBP/USD reached the level of 1.2670. The long shadow on daily candlestick underlines a huge demand for call options in the nearest future. China reported new loans volume in December which was also increased, adding pressure on yuan. US producer price index came in softer-than-expected (2.7% vs 2.9% y/y) while m/m drop was noticed the first time in four months. US dollar index was climbing higher despite those inflationary reports.
Wednesday’s economic data was also negative for both commodity currencies. Australian and New Zealand dollar kept declining versus the greenback. Japanese inflation was also released weaker than analysts predicted, adding pressure on the Bank of Japan not only to keep the soft monetary policy but also to increase stimulus measures. As a result, the Japanese yen declined further. German Consumer Price index was released in line with the market consensus. But the market focus was on the British pound as Brexit story was developing and some light was seen at the end of the tunnel. Theresa May managed to withstand the non-confidence motion and started to get ready to announce a Plan B for the nation. Most analysts agreed on a possible extension of Article 50 in order to postpone (or even cancel?) the Brexit. The Bank of England Governor Carney spoke on Wednesday in order to calm down investors in the UK. Macroeconomic reports were released in positive territory for the Sterling with both CPI and PPI beating the market expectations. GBP/USD soared at the end of the day. In New York, US Import Price index declined at a slower pace than previously anticipated and the greenback was in demand across the board. US Crude Oil Inventories report showed another week of decline, adding demand for call options in oil prices which kept rising.
The Asian trading session was comparatively quiet on Thursday but Europe woke up with more active intentions to move the market. Volatility jumped as traders were expecting EU CPI report to confirm Draghi’s recent dovishness. The report matched consensus and odds for ECB to start tightening decreased. EUR/USD accelerated its downfall while EUR/GBP declined even faster as the British pound was surprisingly strong despite the Brexit uncertainty. In the US, the Philadelphia Fed Manufacturing Index improved in December, stock indices rallied while the greenback was moderately stronger.
Friday came with positive signals from U.S.-China trade tensions. The truce seems to be more durable than some sceptics were saying before as China offered to enlarge imports volume from the U.S. up to 1 trillion dollars, cutting the huge disbalance in trade surplus between the two largest economies in the world. That was a significant improvement step in both countries negotiations since early December last year and global stock indices rallied as traders were rushing to buy call options on higher risk appetite. The British pound suddenly reversed after a failed test of 1.3000 psychological level. The reason was not related to Brexit but macroeconomics. Retail sales in the UK disappointed investors, declining by 0.9% in December compared to the previous month. Moreover, all November’s figures were revised down, signalling that the economy struggles to recover. The Canadian dollar was also among gainers as inflation report added pressure on the Bank of Canada to hike interest rates at least once more time this year. Oil prices kept rallying, testing $54 per barrel.