China’s exports and imports declined in May amid the corona virus pandemic, while trade friction with the US is weighing on demand, both at home and abroad.
China’s trade surplus widened sharply to $62.93 billion in May 2020 from $41.20 billion in the same month a year earlier and well above the expected market surplus of $39 billion. This is the biggest trade surplus since January 1981, as exports were much higher than imports, amid rising tensions with the US.
Exports fell 3.3%y/y to 206.81 billion, after rising 3.4% in the previous month and better than market expectations of a 7% decline, as the virus health crisis undermined business activity and global demand. Meanwhile, imports fell 16.7%y /y to $143.89 billion, following a 14.2% decline in the previous month and compared to market expectations of a 9.7% decline.
The future of the Phase One trade agreement is also in focus because the surplus with the US reached $ 27.9 billion, where tensions over Beijing’s security laws against Hong Kong also did not help prospects. Considering the first five months of this year, the trade surplus narrowed to USD 121.36 billion from USD 127.09 billion in the same period in 2019.
The recent weakening of the Greenback contributed to strengthening of China’s Yuan. Previous prices have equated with the September 2019 high, at 7.1960 with the formation of the same peak (double top). The weakening of the USD sent the pair back down 1.74% from 7.1960 to last week’s close of 7.0699. It seems that the ascending channel has broken out and has done a retest and the price bias still shows weakening to the south.
The next support is the 50.0% retracement level at 7.0511 with the possibility of equalizing the low price of 7.0350. The continued decline will be hindered by the 61.8% retracement level at the 7.0160 price range with an improvement in the psychological number of 7.0000. On the upside, the inability of the price to pass minor support 7.0511 and 7.0350, and if both of these prices are strong enough against gravity, minor resistance of 7.1173 will be tested again. But overall the downward bias is very dominant.
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Ady Phangestu
Analyst – HF-Indonesia
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