(from my colleagues Dr. Win Thin and Ilan Solot)
China data deluge starts this week. December trade data could come out anytime this week, with exports expected to rise 5.3% y/y and imports to rise 5.0% y/y. CPI could also be released this week, with consensus at 2.7% y/y vs. 3.0% in November. Money and credit growth could also be reported, with consensus seeing a slight slowdown in December. USD/CNY is likely to trade firmer in the coming weeks, and is already making new lows for this move.
Chile and Taiwan both report December trade on Tuesday. Last week, Korea was the first to report and was followed by Brazil, and their data sets came in better than expected. Korean exports were up 7% y/y while imports rose 3% y/y, and Brazilian exports were up 5.5% y/y while imports rose 4% y/y so we think that the risk to the December trade data worldwide is to the upside.
Turkey reports November IP on Wednesday, with consensus at 4.1% y/y vs. 0.7% in October. We worry that markets are overreacting but given that the political tensions come ahead of the presidential election this year and on top of worsening fundamentals, we think there is more room for lira weakness, especially with EM under pressure. On a weekly TRY chart, there is an upward channel dating back to 2009. The top of that channel comes in now near 2.27, but clearly there is risk of even great losses than that. Short-term, resistance seen near 2.20 and support seen near 2.15.
Brazil reports November IP on Wednesday, with consensus at -0.8% y/y vs. +0.9% in October. December IPCA inflation will be reported Friday, with expectations for a steady rate of 5.8% y/y. The central bank’s modified FX intervention program is surely getting a test to start off the year. Daily swaps have been cut to $200 mln from $500 mln previously, but it remains to be seen how the BCB will use its discretionary powers on the FX credit lines. For USD/BRL, support seen near 2.35 and then 2.30 while resistance seen near 2.40 and then 2.45.
Poland central bank holds policy meeting Wednesday and is expected to keep rates steady at 2.5%. Real sector data have been firming up a bit, justifying the central bank’s decision to keep rates steady since the last 25 bp cut in July. However, price pressures remain limited and will give the bank leeway to cut rates this year if needed. CPI rose only 0.6% y/y in November, while PPI is still contracting y/y. for EUR/PLN, support seen near 4.15 while resistance seen near 4.20.
Bank of Korea holds policy meeting Thursday and is expected to keep rates steady at 2.5%. Headline CPI was just reported at 1.1% y/y in December, down from 1.2% in November. However, core CPI is elevated, rising 1.9% y/y in December vs. 2.0% in November. Even though headline is below the 2.5-3.5% target, the rise in core should keep BOK on hold for now. That said, we should not rule out the chance of a cut, especially with JPY weakening once again. For USD/KRW, support seen near 1150 while resistance seen near 1070 and then 1080.
Bank Indonesia holds policy meeting Thursday and is expected to keep rates steady at 7.5%. Inflation remains high while the rupiah remains under pressure and so we think there is a chance for a hawkish surprise from BI. It kept rates steady in December. Headline CPI rose 8.4% y/y in December, steady from November, but core accelerated to 5.0% y/y from 4.8% and is the cycle high. For USD/IDR, support seen near 12000 while resistance seen near 12300.
South Africa reports November IP on Thursday, with consensus at 0.3% y/y vs. 1.5% in October. The economy is softening across the board, and with inflation starting to ease (for now, at least), we think the markets are wrong to be positioned for SARB rate hikes this year. At the very least, steady rates will be seen but we think the risks are tilted towards easing, not tightening. Money and credit growth continued to slow in November to cycle lows, pointing to slower activity ahead. For USD/ZAR, support seen near 10.50 and then 10.40, while resistance seen near 10.80 and then 11.00.
Mexico reports December CPI on Thursday, with headline expected at 3.85% y/y vs. 3.62% in November. Modest acceleration in inflation should justify the central bank’s decision to keep rates steady at 3.5% since the last 25 bp cut in October. However, real sector data remain weak for the most part. If the recovery does not materialize as expected, there is a risk that the easing cycle resumes in 2014. For USD/MXN, support seen near 13.00 while resistance seen near 13.20 and then 13.40-45.
Peru central bank holds policy meeting Thursday and is expected to keep rates steady at 4.0%. CPI inflation of 2.9% y/y in December remains just within the bank’s 1-3% target range, while the real sector is holding up fairly well after slowing earlier in 2013. Given that the first 25 bp cut was just seen in November, we think there is more room for easing. Further cuts will likely be seen in 2014 but at a modest pace. For USD/PEN, support seen near 2.80 while resistance seen near 2.83.
This piece is cross-posted from Marc to Market with permission.