Over two consecutive years, the Chinese Yuan faced depreciation against the Greenback, fuelled by a post-pandemic recovery in China marked by turbulence.
Amidst this backdrop, the fiscal policies of the two economic powerhouses diverged starkly. While Chinese policymakers pursued monetary easing strategies in response to contracting economic activity, compounded by manufacturing activity declining for a third consecutive month in December, the Federal Reserve adopted a contrasting stance, tightening monetary policies in response to aggressive inflation.
This juxtaposition led to a divergence in yields between the two economies, with the US dollar garnering favour due to its higher yields, leading to a 3.02% surge in the USDCNH currency pair in 2023. However, as market sentiment shifted, recent months witnessed a weakening of the Greenback. Markets now anticipaate an 85% chance of the Federal Reserve easing rates in response to moderated price pressures as soon as March. Amidst anticipation of the Fed’s next moves, highlighted by upcoming economic data like job openings and Nonfarm payrolls, the USDCNH’s trajectory becomes a focal point.
Technical
As the Greenback weakened in recent weeks, the USDCNH currency pair embarked on a downward trajectory, dipping below the 100-day moving average and navigating within a descending channel pattern.
At the 7.16036 resistance level, downward pressure within this channel intensified, steering the pair lower. However, the confines of this descending channel imposed a limit on the downside momentum. The lower boundary of the pattern offered a lifeline as oversold conditions emerged on the Relative Strength Index (RSI), paving the way for a reversal.
Witnessing a bounce from the lower boundary, the pair surged, carving out a support level at 7.08704. The 61.80% Fibonacci Retracement Golden Ratio has now stepped into the spotlight, acting as a potential pivot point for price movement. Should a surge in volume accompany a breakthrough above this Golden Ratio, it might signal heightened interest in the upside, potentially leaving the 7.16036 level probable. Conversely, if the Golden Ratio asserts itself as a resistance point, attention may pivot back to the 7.08704 support level.
Summary
The USDCNH’s journey, marked by the Yuan’s prior depreciation against the Greenback, reflected divergent economic policies. While market sentiment swayed the Greenback’s recent weakening, upcoming economic data releases will likely steer the pair. Technical cues point to pivotal levels at the 7.16036 and 7.08704 levels, potentially guiding the pair.
Sources: National Bureau of Statistics of China, CME, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
Disclaimer: Trive South Africa (Pty) Ltd (hereinafter referred to as “Trive SA”), with registration number 2005/011130/07, is an authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act, 37 of 2002. Trive SA is authorised and regulated by the South African Financial Sector Conduct Authority (FSCA) and holds FSP number 27231. Trive Financial Services Ltd (hereinafter referred to as “Trive MU”) holds an Investment Dealer (Full-Service Dealer, excluding Underwriting) Licence with licence number GB21026295 pursuant to section 29 of the Securities Act 2005, Rule 4 of the Securities Rules 2007, and the Financial Services Rules 2008. Trive MU is authorized and regulated by the Mauritius Financial Services Commission (FSC) and holds Global Business Licence number GB21026295 under Section 72(6) of the Financial Services Act. Trive SA and Trive MU are collectively known and referred to as “Trive Africa”.
Market and economic conditions are subject to sudden change which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. Trive Africa and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered. Please consider the risks involved before you trade or invest. All trades on the Trive Africa platform are subject to the legal terms and conditions to which you agree to be bound. Brand Logos are owned by the respective companies and not by Trive Africa. The use of a company’s brand logo does not represent an endorsement of Trive Africa by the company, nor an endorsement of the company by Trive Africa, nor does it necessarily imply any contractual relationship. Images are for illustrative purposes only and past performance is not necessarily an indication of future performance. No services are offered to stateless persons, persons under the age of 18 years, persons and/or residents of sanctioned countries or any other jurisdiction where the distribution of leveraged instruments is prohibited, and citizens of any state or country where it may be against the law of that country to trade with a South African and/or Mauritius based company and/or where the services are not made available by Trive Africa to hold an account with us. In any case, above all, it is your responsibility to avoid contravening any legislation in the country from where you are at the time.
CFDs and other margin products are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how these products work and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. See our full Risk Disclosure and Terms of Business for further details. Some or all of the services and products are not offered to citizens or residents of certain jurisdictions where international sanctions or local regulatory requirements restrict or prohibit them.
