USDCNH Is Preparing For Another Breakout In the Coming Weeks

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Earlier this morning and during the first trading session of this week, some economic figures were released from China, which had a significant impact on the markets, along with the impact of the French election outcomes.

The Chinese figures today can be considered positive. However, the Chinese equities closed lower, losing nearly 1%.

Trade Balance Surplus At The Highest In Three Months

The Trade Balance surplus in China increased again for the second month in a row, posting the highest surplus since January of this year at 38.05B USD up from 23.92B USD.

This comes after a deficit of -9.25B in February, which was largely due to the Chinese new year holiday, which was the first deficit since February of 2014.

Exports Picking Up Once Again

The YoY Exports posted the second YoY increase in a row, one we have not seen since 2014, which could be the first bright light at the end of the tunnel.

The YoY Exports increased by 8.0% In April compared to 16.4% in March, despite the fact that the estimates were to rise by 10.4%.

Yet, this does not change the fact that China’s exports have improved over the past two months, which could be a sign of recovery in the coming months.

Imports Slowed Down Further

As exports increase, imports have slowed down notably. The YoY Imports posted its 2nd slowing down in a row. Something we haven’t seen since 2011.

The YoY imports increased by 11.9% in April compared to 20.3 in March, despite the fact that the estimates were to rise by more than 18.0%.

This is also the lowest increase in imports since December of last year.

CNH At The Lowest Level Since Mid-April

Following the economic releases today, CNH declined further against the US Dollar, trading around 6.90 once again, after consolidating around 6.88 for more than two weeks.

Looking at the technical charts, it looks like USDCNH is preparing for another breakout over the coming week.

The breakout resistance stands around 6.92, which should be watched very carefully, as a break above that resistance is likely to clear the way to retest last year’s high’s around 6.96, with a possibility to post another historical high around 7.0.

On the flip side, any downside pressure, for the time being, is expected to remain limited above 6.88 and/or 6.84 solid support area, which held since the beginning of March until today.

Chinese Equities Declined After Today’s Data

China’s main indices weren’t happy with today’s outcomes, as today’s figures keep China on track for 6.8 to 6.9% GDP growth target.

Shanghai Composite Index managed to break its uptrend line, which lasted since Q1 of last year, declining all the way to as low as 3,078 at the close, which deepens the downside outlook over the coming days, with a possibility to retest the 3,000 psychological support.

What makes the bearish outlook stronger is that the index is not trading below its entire moving averages, including 50, 100, and 200 DAY MA for the first since the third quarter of last year.

Yet, the technical indicators are oversold, which suggests a short-term bounce before the trend resumes. However, any rally is expected to remain limited below the broken trend line which stands around 3,150.

 

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