The Euro-Chinese Yuan currency pair (EURCNH) is on course for a second consecutive session of losses as trade data, growing monetary policy shift sentiment, and rating agency actions influence the pair. The yuan weakened against the dollar due to mixed trade data from China and a negative credit rating outlook from Moody’s. Despite China’s unexpected growth in exports, concerns persist over domestic demand and the need for policy support. Moody’s downgrade added pressure, keeping the offshore yuan around 7.1690 against the dollar.
The euro, on the other hand, faced downward pressure against the dollar as markets bet on rate cuts by the European Central Bank (ECB) starting from March 2024. With a 1% weekly decline, the euro hovered near a three-week low against the dollar. ECB policymakers, particularly Francois Villeroy de Galhau, hint at imminent rate adjustments amid concerns about rapid disinflation.
Technical Analysis
The 4-hour chart shows that the EURCNH pair, currently at 7.71401, exhibits a downward trajectory within a falling wedge pattern. Trading below the key SMAs indicates a bearish trend, supported by the downward-sloping 20-SMA (green line) crossing below the 50-SMA (blue line) and 100-SMA (orange line). Despite the flat RSI at 30.91, hinting at possible stability, the falling volume suggests waning market interest and potential for a reversal of the downtrend.
Short-term trading opportunities exist towards the initial support level at 7.69949, with the potential for further decline towards 7.67973 if the bears maintain momentum. However, a break above the 7.73266 resistance could signal a potential reversal and trigger a move towards the 7.75167 and 7.76918 resistance levels higher.
Summary
The EUR/CNH pair operates within a bearish pattern, showing potential for further decline. A sustained push above the resistance could signal a bullish turnaround, while a breach below support levels may prolong the bearish trend.
Sources: TradingView, Trading Economics, Reuters, General Administration of Customs, The Star.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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