The EURCNH pair finds itself in a delicate position as mixed economic signals from China and divergent views among ECB officials impact market sentiment ahead of the crucial Eurozone inflation report, scheduled for release later today. On the one hand, China’s weak economic data, particularly the underwhelming GDP growth and retail sales figures, raise concerns about renewed stimulus measures from Beijing, potentially weakening the Yuan.
China’s fourth-quarter GDP growth of 5.2% missed market expectations and fell short of the government’s target, highlighting the ongoing struggles of the world’s second-largest economy. The property crisis, weak consumer demand, and global headwinds continue to dampen growth prospects. This lacklustre performance raises the possibility of further stimulus measures from the People’s Bank of China (PBoC), which could support the Yuan.
Meanwhile, the Euro draws strength from recent hawkish pronouncements by ECB officials. Joachim Nagel and Robert Holzmann, both influential policymakers, downplayed the prospect of near-term rate cuts, emphasizing the need to prioritize inflation control. This stance aligns with market expectations, which currently price in around 150 basis points of cuts from the ECB this year. The prospect of tighter-for-longer monetary policy in the Eurozone continues to boost the Euro against the Yuan.
Technical
The 4-hour EURCNH chart reveals a technical tug-of-war between bulls and bears. The price action currently sits nestled between the 50% and 61.80% Fibonacci retracement levels, following a break below key SMAs. The bearish sentiment is evident as the price trades below the 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line). The RSI of 36.79 and its downward slope suggest a prevailing bearish trend.
Should the bears sustain momentum below the golden ratio, currently at 7.84102, a potential target lies at the 78.60% Fibonacci retracement level (7.82073). A breach below this level could bring the four-week low of 7.80313 into play.
Alternatively, if the bulls manage to sustain a push above the 50% Fibonacci retracement level, a potential short-term trading opportunity may emerge towards the 38.20% Fibonacci retracement level (7.85296). A break above the 38.20% Fibonacci retracement could confirm the bullish reversal, likely bringing the 23.60% Fibonacci retracement (7.86597) and a three-week high of 7.88538 into play.
Summary
The EURCNH pair faces a confluence of opposing forces ahead of the Eurozone inflation report. While China’s economic woes cast a shadow over the Yuan, the ECB’s hawkish tilt lends support to the Euro. Technically, the price action is at a crossroads, with the 50% and 61.80% Fibonacci retracement levels acting as key pivot points. A sustained push above the 50% Fibonacci retracement level could trigger a bullish run, while a break below the golden ratio could open the door for further bearish momentum.
Sources: TradingView, Trading Economics, Reuters, National Bureau of Statistics of China, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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