22.01.201901:03 Forex Analysis & Reviews: Don't Panic: the market ignored weak Chinese data

The data on the growth of the Chinese economy published today could not support the US currency, as the market calmly accepted the fact of a slowdown in China's GDP. Moreover, the negative effect was offset by the unexpected growth of industrial production, contrary to weak forecasts. As a result, the dollar bulls retreated, and the euro-dollar pair began trading week with a corrective growth.

But let's start with a sad fact: China's economy has been declining for the third quarter in a row, thus confirming the fears of many experts about the prospects of the world economy. The country's GDP for the last quarter of 2018 came out at the expected level-6.4%, this is the weakest growth in the last 10 years. In annual terms, the situation is no better: the indicator fell to 6.6%, recording an anti-record: the Chinese economy grew at such a weak pace almost three decades ago - in 1990.

The structure of the indicators suggests that the main problems are associated with a significant decrease in the level of investment and consumption (in particular, the demand for cars has fallen quite strongly). Investments in fixed assets last year reached a 20-year low, reaching a gain of 5.9% with a weak forecast of six percent. The trade war between the United States and China makes itself felt: according to the overwhelming majority of experts, it was the trade conflict that became the root cause of the slowdown of the main economic indicators of China.

However, today it was not without surprises. Industrial production in December showed an unexpected increase to 5.7%, while analysts expected a further decline. Retail sales also came out in the "green zone" - at around 8.2%, while the forecast was 8.1%.

Thus, the widely expected slowdown in GDP growth and the unexpected growth of industrial production had a contradictory impact. The dollar could not use the status of "safe haven", as there are no panic moods among traders. The decline of the Chinese economy has long been discussed, and the published figures did not go beyond the forecasts. Therefore, the dollar index actually remained at the level of Friday's closing, thus allowing the EUR/USD pair to approach the boundaries of the 14th figure again.

Today, American trading floors are closed - Martin Luther King day is being celebrated in the US. Therefore, the market will focus on European developments and the dynamics of the US-China talks. During the weekend, there were rumors that the negotiation process "stalled": the stumbling block was the issue of intellectual property protection of American companies.

This issue has been discussed for a long time. US Treasury Secretary Steven Mnuchin last year said that the future deal should include not only the rejection of the practice of forced transfer of innovative technologies, but also the protection of intellectual property of Americans. According to a number of sources, the parties are now faced with the problem of codification of these guarantees on mutually beneficial terms. Against this background, certain currencies are most dependent on the Chinese economy (in particular, AUD and NZD) have subsided slightly, while the US currency has not yet responded to these rumors. But if there are clearer signals on the market that indicate problems in the negotiation process, the dollar will get a reason for its revenge – at least in the short term.

In general, both the euro and the greenback remain under the equivalent pressure of fundamental factors. The single currency is forced to reckon with the "dovish" comments of representatives of the ECB against the background of a slowdown in European inflation and German economic indicators. The upcoming elections to the European Parliament in spring, as well as protests in France, complement the overall negative picture. "Cherry on the cake" is Brexit, whose prospects are still questionable. If today Theresa May does not convince MPs to support the "Plan B", then with high probability Brexit will be postponed to a later date, which means the period of uncertainty will stretch for a few more months.

Despite this gloomy picture, dollar bulls cannot take full advantage of the situation. In the United States, a record-breaking shutdown continues, reflecting the growing political crisis. On Saturday, Trump offered the Democrats a compromise, promising "certain concessions in immigration policy" in exchange for building the notorious wall on the border of the United States and Mexico. But the representatives of the Democratic Party literally the next day rejected this proposal, calling it "unequal". In other words, the parties could not get out of the political clinch, and the Shutdown regime was continued.

In addition, representatives of the Federal Reserve also did not please the US currency. In particular, the head of the Federal Reserve Bank of Kansas City, Esther George, the other day, repeated the rhetoric of many of her colleagues (including the head of the Federal Reserve System), saying that the Federal Reserve this year "can be patient" in the matter of tightening monetary policy. In addition, she did not rule out the possibility that the regulator will revise the current policy of reducing the size of the balance. Such rhetoric surprised traders, since George was one of the few "hawks" who had defended the Fed's tough policy for many years. After her speech on the market, they again started talking about the fact that this year the regulator can maintain a wait-and-see position, keeping the rate at the current level.

Thus, the euro-dollar pair is in the grip of conflicting fundamental factors. Today, EUR/USD traders will focus on Brexit and the dynamics of further negotiations between Beijing and Washington. If by the end of the day the appetite for risk persists, the price will demonstrate a larger correction, entrenched in the 14th figure. Otherwise, the pair will again be near the support level of 1.1310 - this is the bottom line of the Bollinger Bands on the daily chart.