Early this month , Citibank warned from an upcoming APAC rumble arguing that economic data is no longer as positive for EM Asia Pacific (APAC) and this is negative risk that will likely be a trigger for selling EUR/USD and AUD/JPY in Q4. Today , Citi reiterates this view noticing that with more of weak September data out of Asia , there are now more evidence to solidify this view. Here is how Citi's Richarad Cochinos puts it: Data in Asia continues to weaken – and despite having no official US data , this still gives an indication of US import demand. Overnight , September China trade numbers disappointed to the downside (driven by a collapse in exports). Total trade balance fell to $15.2bn for the month of September; down from $28.5bn in August ($26.2bn was expected). Exports fell -0.3% yoy , versus +5.5% expected. Imports increased 7.4% yoy , versus 7.0% previously and expected.
This follows after South Korea’s surprisingly disappointing September trade numbers on Sept 30th. Between September and now , Taiwan and India have reported softer trade – so we can definitively say there is a weakening trend across the region.
As we highlighted in our original note (see Getting ready to APAC rumble) weaker data out of SE Asia is negative risk , and we expect this will be a trigger for selling EUR/USD and AUD/JPY in Q4.
Chart 6 below is the APAC Citi economic surprise series , and returns to EUR/USD & AUD/JPY. – From a flow perspective , the USD is one of the most oversold currencies in the G10 currently (on account of the budget negotiations) while AUD is generally overbought.
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