The USDCNY currency pair witnessed a notable shift last month, marking the Greenback’s first decline against the Yuan after three consecutive months of gains. November saw a significant 2.46% drop, propelled by evolving market sentiment favouring higher-risk assets. Factors contributing to the Greenback’s weakness encompass a blend of receding inflation, a softening labour market, and growing market anticipation hinting at impending rate cuts by the Federal Reserve, potentially as early as March 2024, according to the CME FedWatch Tool.
The Federal Reserve’s dovish stance and the confirmation of potential rate cuts in the upcoming year further compounded the Greenback’s plight. Meanwhile, China maintained its benchmark lending rates as anticipated, holding steady at a one-year loan prime rate of 3.45% and a five-year rate of 4.2%, as reported by the People’s Bank of China.
Traders are eagerly eyeing this week’s release of the PCE Price Index, the Federal Reserve’s favoured gauge of inflation. This event serves as a pivotal moment for market players, enabling them to gauge whether the unfolding inflationary landscape aligns with the narrative of anticipated rate cuts.
Technical
The USDCNY currency pair recently shifted into a downtrend, breaching below the 100-day moving average. This pivotal move followed a resistance point at 7.3493, highlighted by overbought conditions on the relative strength index (RSI), triggering a substantial downward movement. Presently, the pair has encountered the 7.1198 level, a critical support level formed back in July.
The current scenario signals an oversold RSI condition, potentially indicating a forthcoming reversal if this level proves resilient as a support threshold. In the event of a reversal, attention might gravitate towards retesting the 7.3493 level, potentially serving as an upside point of interest. Conversely, a sustained breach beneath this pivotal support could usher in further downward possibilities.
Summary
The USDCNY pair navigated a pivotal downturn amidst evolving market sentiments, reflecting the Greenback’s initial decline against the Yuan after consecutive months of strength. Anticipation of rate cuts by the Federal Reserve amid receding inflation hints at a delicate phase, as technical indicators underscore a crucial support level. The upcoming PCE Price Index release poses significance, aligning market anticipation with inflationary shifts shaping the pair’s trajectory.
Sources: People’s Bank of China, Reuters, CME, TradingView
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