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Busch: How to Trade China's Data Dump

We get a slew of Chinese economic data out tonight with analysts' expectations looking for mainly unchanged numbers.

Here's the list (all times GMT):

1:30

  • House Price Index Dec.2.3%E, 2.2%L

02:00

  • GDP Q47.8%E, 7.4%L
  • Industrial Production Dec.10.1%E, 10.1%L
  • Retail Sales Dec.15,1%E, 14.9%L
  • Fixed Asset Inv. De.20.7%E, 20.7%L
  • NBS presser
China Photos | Getty Images

This data is the big monthly batch that China releases all at the same time and is the first chunk of data coming after the extraordinarily positive export numbers from last week. The trade data surprised the markets and lead to a nice bout of Risk-On trading with Chinese stocks, global stocks and the Australian dollar all seeing a bounce.

(Read More: You Just Can't Keep This Currency Down)

There have been questions raised about this trade data and the reliability of it.

Why? As an example, let's take a look at the latest data out of Australia.

  • Employment change Dec.-5.5k, 17.1k Nov.
  • Unemployment rate Dec.5.4%, 5.2% Nov.

In other words, there is a disconnect between Australia seeing an uptick in their December unemployment when Chinese export data zoomed 14.1%.

To me, the Chinese data risks disappointing the markets as it will be hard pressed to build on the momentum after the trade data. At best, good numbers will support AUD/USD, but not likely drive it up further to break the key 1.0600 level. At worst, bad numbers will take away optimism for global growth and hurt the AUD/USD. Remember, the weak Australia employment data is making the market price in two rate cuts.

Here's a trade for the numbers tonight:

Sell AUD/USD

  • Entry 1.0575
  • S/L 1.0625
  • T/P 1.0475

Again, we have an event to trade and a specific targeted stop on top.

This is an against the trend trade, so timing is key. To minimize risk, you can wait on the entry until right before the number.

(Read More: Australia Jobs Data Signal Rate Cuts Ahead)