Forex » China inflation data supports the yuan

Inflation in China falls more than expected

The yuan hit a 5-day forex high against the US dollar on the back of inflation data from China. In December, China’s headline inflation rose to 1.5% year-on-year from 2.3% in November. During a period when inflation concerns persist, this may not seem like such a bad thing. What should be noted, however, is that lower inflationary pressures are also eroding growth potential, at a time when China’s fourth-quarter GDP is already less of a concern.

In December, poor retail sales and investment data had already prompted analysts to revise growth down. And to underscore the possibility that inflationary pressures remain bullish, producer prices also fell for the second month after hitting a 26-year high. Given that this is a key driver of inflation and that the CPI has lagged behind the PPI in recent years, should we now worry about China’s disinflation?

If so, we can expect more stimulus from Beijing in the first quarter and explain why the A50 index is up around 0.7% today after the release.

Although it is too early to call a bottom, we still believe that the price could rise from 15,200 and head towards 16,000 in the short term.

USD/CNH at 5-day low

We highlighted yesterday that we see potential for USD/CNH to cross a break above the bearish reversal pattern given its stubbornness to hold below 6.3500. And that remains a possibility, even if the couple US dollar/CNY fell to a 5 day low today in forex. Momentum favors lower from here, but note that all eyes will be on US inflation data later today, where a soft print could push it lower, while a soft print could push it lower. strong could help it get back to/above 6.3800.

USD/CNH daily chart

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Hang Seng rises to the upper trending channel

Wall Street’s rally, led by tech stocks, helped the Hang Seng Index spread to a one-month high and extend it from January’s low of 6.5%. A double bottom has formed around 22,600, projecting a rough upside target around 22,650. However, its rally has stalled at the upper trend line of a multi-month declining channel, just above 24 000. From a purely technical standpoint, it is plausible to expect a pullback from these levels, especially if US inflation comes back strong and weighs on Wall Street again. If the trend line holds, we will look to close the gap and target 28,863. However, if we only see a break, the immediate target for the bulls is near the high of 24,385. The break will likely be dictated by global sentiment. . actions in the short term.

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By Matt Simpson, Forex » Official site

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Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or solicitation to buy or sell foreign exchange contracts or CFDs. . Although the information contained in this document has been obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, and assumes no responsibility for any direct, indirect, or consequential damages that may result from anyone’s reliance on such information. information.

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