News & analysis
News & analysis

Yuan sees increasing strength as Covid 19 restrictions ease

15 December 2022 By GO Markets

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Yuan sees increasing strength as Covid 19 restrictions ease

The USDCNH is an important currency pair not just in terms of pure trading but also in terms of gauging overall market sentiment. The pair is also reflective of much of the macroeconomic pressures effecting the global economy at the moment. This includes but is not limited to, recessionary, geopolitical and inflationary pressure.

Background

Reports in recent weeks have suggested that China might finally be awaking from their Covid 19 slumber. The country has been one of the places to still have strict Covid 19 restrictions. This included, forced Quarantine for citizens who had tested positive for the virus. Last week the country finally relaxed some of its most severe Covid 19 restrictions as it pivots from its Covid zero policy. The country has gone as far as to indicate that international visitors will be welcomed back in the near-term future. A Chinese, economy that is rebounding is something that the global economy has considered, but not really quantified and may be an important factor in creating a soft landing for countries such as the USA and Australia. The expectation is that economic growth in China may rise back above 5% although how far above 5% it goes is still to be determined. On the other hand, the USD has begun to weaken as interest rates hikes look like become less aggressive.

 

Technical

The price chart is highly informative and shows that firstly, the Chinese economy and the improved sentiment with the expectations of more easing of restrictions. It also shows how the USD has begun to see some weakness as expectations of a recession continue to rise.

On the weekly chart the price is clearly showing a head and shoulders pattern. This shows an exhausted USD and a strengthen CNH. The price has actually already broken through the neckline at 6.98. The price may come sell down further to the next support at 6.80. This level also doubles as the 200-week moving average or the long term mean for the price. The recent sell volume on the weekly candles has also been quite large indicating that the sellers are beginning to take control of the price and that bulls are beginning to drop.

The daily chart shows that the price may still retest the neckline before dropping down to its next support levels. It is currently in a tight ledge or consolidation before the price shifts direction.

With so much economic data still to come out and a high level of volatility still in the markets, the USD/CNH remains an intriguing asset to watch as a trade target and a measure of global sentiment.

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