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The pronounced narratives that have been driving market price action for the latter half of 2014 are at the forefront of participants’ minds to begin the new trading week, with global growth concerns dampening risk appetite while the greenback remains in vogue on slumping oil prices and monetary policy divergence between the Federal Reserve and other developed central banks.   The concerns surrounding global growth have been spurred by disappointing Chinese trade data that was released overnight, and although China’s trade surplus widened by a larger amount than expected, this was a consequence of a sharp collapse in import growth which saw the value of imported goods fall by 6.7% compared to the last twelve months.

The shockingly soft import data is reflective of the recent slide in energy prices, though volume of energy imports were also down, which is consistent with an overall slowing growth trajectory for the world’s second largest economy.  Expectations had been for imported goods to rise by 3.8% on a y/o/y basis, so the wide miss has stoked conjecture the government will find it apt to assess further rate cuts and other stimulus measures as a means to save growth from coming in below target.   As a result, the Shanghai Comp barreled higher with a gain of 2.86% on its session, while USDCNY rose due to a weakening yuan despite the PBoC fixing the CNY stronger.   We would caution the stage is set for a highly volatile upcoming year in China, with the government looking to navigate the economy through a rough patch while reducing their reliance on “nuclear” monetary policy tools, but also having the ability to utilize the exchange rate as a means to steer growth.   Two-way volatility in the CNY will likely amplify in 2015, which has implications for corporations with any linkages to China, not just ones trading the Renminbi.

The data flow out of Europe has been light this morning, so the big focus for market participants has been the inability of the hydrocarbon complex to seal the exodus of capital.   The soft Chinese trade data was compounded with a bout of analysts’ price downgrades throughout 2015 and 2016 for the black gold, causing WTI and Brent to slide further and are now trading in the mid $64/barrel and low $67/barrel respectively.   Friday’s rally in the DXY after the enthusiastic Non-Farm Payrolls number seems to still have some legs, with market participants adjusting expectations for a more hawkish Federal Reserve meeting to end the year when the FOMC meets next week.   That said, today’s DXY strength is heavily reliant on the greenback’s price action against the Euro (largest currency allocation in the DXY basket) as the big dollar is seeing some consolidation against the Pound, Yen, and Loonie.   While the CAD isn’t making any great strides against its American counterpart, its outperforming when compared to its commodity-linked brethren given the new lows experienced today in the oil market.   Housing starts and building permits for the Canadian economy came in slightly better than expectations this morning, though with a lack of tier-one domestic data on the docket for the remainder of the week, price action in oil and broader USD-linked developments will drive Loonie sentiment.

Further reading:

1.22 could provide support in EUR/USD; 1.5580 in GBP/USD: Elliott Wave Analysis

EUR/USD, GBP/USD, USD/JPY TA, Pivot Points – Dec. 8 2014