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Chinese Export Machine Stumbles

China Trade Balance Data Puts Government’s Ambitious Growth Target at Risk

chinese-export

Disappointing Chinese economic data just released shows that the Central Planners have their hands full as they attempt to tackle environmental problems while maintaining economic growth. The emphasis on building domestic consumption and rebalancing the economy seems on hold as policymakers try and focus on new channels to stoke growth to meet the 2015 GDP target.

Chinese Exports Tumble

Data overnight showed the world’s second largest economy in the midst of a serious contraction in real economic output after the latest import and export data missed estimates by a wide margin. Exports collapsed by -15.00% on expectations of a 12.00% expansion while imports continued to slide, falling by -12.7% compared to the prior month. The trade balance fell from $60.60 billion in the prior reporting period to just over $3 billion according to the most up-to-date data points. Nevertheless, Chinese stocks remain some of the best performers in 2015, aided by strong growth in retail brokerage accounts. With the Government crackdown on corruption seeing decreasing interest in Chinese gambling hub Macau, former gamblers are turning to investing as an outlet for disposable income, raising risks of a larger equity bubble in one of the world’s fastest growing equity markets.

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Golds Breaks with Dollar

Gold prices gained broadly on the week despite the momentum higher in the dollar as a surge in physical bullion purchases from India supported elevated prices. Gold prices remained above the key $1200, breaking with the inverse correlation to the dollar that has guided prices in recent months. Oil prices also stayed elevated even after a stronger-than-forecast inventory build in the United States which is seeing excess storage space collapse at an unprecedented pace. A cross border assault on Saudi Arabia from Yemen’s Houthi Rebels has increased concerns of an imminent full-scale ground invasion. With tensions ratcheted ever higher, the possibility of foreign powers such as Iran joining the conflict for control of Yemen’s geographically strategic location grows with each escalation. WTI is presently trending towards $53, boosted by the unrest.

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Dollar Momentum Resurgent

In spite of the fragmented nature of the FOMC voting members, the dollar managed to reverse the nonfarm payrolls losses with the dollar rising back towards multi-year highs against a basket of currencies. EURUSD was the biggest source of momentum for the dollar as resurgent Greek fears and the ECB’s quantitative easing program sent the pair tumbling back towards multi-year lows. Aside from the Euro, the UK Pound fell nearly 300 pips, hitting new lows against the US dollar last seen in June of 2010. Persistent softness in US economic data has raised concerns from some FOMC Members, namely Kocherlakota, who is calling for a renewed period of quantitative easing to stimulate investment. This revelation comes just as other members, divided on the outlook, are pushing expectations for a rate hike towards the end of 2015 and beginning of 2016.

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EURUSD Equidistant Channel Technical Pattern

After bouncing to approximately 1.1050 and seeing a double top technical formation, the EURUSD has resumed its prevailing longer-term downtrend with the pair keen on retesting multi-year lows reached in the previous month. Last week saw abundant weakness in the pair despite the Greek repayment as German industrial data weighed on sentiment. The downward trending equidistant channel in EURUSD has been setting up for nearly a week, has a bearish bias with this week’s ECB interest rate decision forecast to weigh further on the pair. Record Euro shorts are also helping the case for further downward momentum, with the ideal strategy trading the trend. Fighting the trend with long positions will result in worsening risk-reward characteristics for any trade.

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