China Lending Supports Risk Corrolated Trades

Forex - China Lending Supports Risk Corrolated Trades

Forex News and Events: Risk appetite remains firm, as Chinese data suggests that the real economy has good momentum. In particular, lending, the area of some concerns, was much better than the market expected printing at cny300bn. This reading clearly is a sign that the Chinese government is still encouraging credit growth and committed to loose monetarily policy. However, it’s important to note that trade figures were very weak at -23.4% y/y, casting a shadow on the health of external demand. Overall, with China continuing to move in the right direction, risk favorable trend should continue. Asian equities were higher on the figures (Shanghai up 2.21%) and the positive momentum has carried over into the European session. We are currently seeing a slight pullback in the EURUSD from the 1.4628 highs, but expect this just a short term correction. Yesterday, the BoE held rates steady and left the amount of asset purchases unchanged. They also decided not to lower interest rates on bank reserves to encourage lending as markets had speculated. The Sterling gained on the news, with GBPUSD penetrating the psychological 1.6700 level. Also helping risk correlated trades was US Treasury Secretary Geithner testimony before the Congressional Oversight Panel on TARP: "As we enter this new phase, we must begin winding down some of the extraordinary support we put in place for the financial system. We are now in a position to evolve our strategy as we move from crisis response to recovery, from rescuing the economy to repairing and rebuilding the foundation for future growth." He also noted that recovery might take more time to develop than originally anticipated. The data from the US supported the theory that recovery was slowly entrenching itself, as the initial claims came in better than expected at 550k and continuing claims fell to 6088k. In Canada, the BoC held its policy rate steady and restated its commitment to hold the current policy rate until the end of Q2 2010. However, the central bank is clearly concerned over the recent appreciation of the CAD, stating that "persistent strength in the Canadian dollar remains a risk to growth and to the return of inflation to target. In its conduct of monetary policy at low interest rates, the Bank retains considerable flexibility…”. Today, markets will we watching some 2nd tier data form the US in Import Price Index, University of Michigan Confidence , wholesale inventories and the monthly budget statement.