Japanese yen is a touch softer in Asian session today after China released solid growth data. However, the reaction is so far mild as investors are still concerned that surging inflation and risk of asset bubbles would trigger more tightening measures from the Chinese government. Dollar index breached December's high of 78.45 overnight and remains firm. New Zealand dollar failed to react to stronger than expected retail sales data overnight and remains the weakest currency this week. Euro is the second weakest and remains broadly pressured and is vulnerable to PMI disappointment later today.
China's GDP posted an impressive 10.7% qoy rise in Q4, faster pace since 2007. CPI rose much faster than expected by 1.9% yoy in December, the second straight gain after none months of decline. PPI rose 1.7% yoy after dropping for 12 months. Economists believe that the inflation trend is a deep concern of the Chinese government, as well the risk of asset bubbles. The strong growth and inflation data intensifies speculation that more tightening is around the corner. Such speculations would continue to weigh on commodity currencies.
Talking about commodities, Gold dropped sharply to as low as 1106.8 before recovering mildly. The break of 1118.5 support indicates that recovery from 1072.5 has completed at 1163 already. Whole correction from 1227.5 could be resuming for a test on 1075.2 support first and then 61.8% retracement of 931.3 to 1227.5 at 1044.4. Gold's near term bearishness should provide support to dollar for further rally.
Dollar index's break of 78.45 resistance overnight confirms our view that whole rise from 74.19 has resumed. Revisiting the bigger picture, medium term down trend from 89.62 has completed with five waves down to 74.19, on bullish convergence condition in daily MACD. Our preferred scenario is that price actions fro 88.46 are a three wave consolidation which has finished. Rise from 74.19 is resuming whole up trend from 70.70. An alternative scenario is that rise from 74.19 is merely correcting the fall from 89.62. In either case, rise from 74.19 should target 38.2% retracement of 89.62 to 74.19 at 80.08 next. The structure of such rise will, be it impulsive or corrective, will decide the longer term outlook and the probability of the above mentioned scenarios.
On the data front, New Zealand retail sales released overnight showed strong rise of 0.8% mom in November. Main focus in European session will be on Eurozone PMI services and manufacturing, which are expected to rise slightly to 53.8 and 51.9 respectively in January. However, Euro will be vulnerable to another selloff in case of disappointments. Other data to be featured include ECB monthly bulletin, UK public sector net borrowing, M4 money supply, CBI industrial trends as well as Swiss ZEW.
In the US session, initial jobless claims is expected to be steady at 440k. Philly Fed survey is expected to drop slightly to 18 in January. Leading indicators is expected to rise 0.7% in December. Also, focus will be on crude oil inventories which might trigger some volatility in oil, and hence the dollar.