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Forex »China overcome by its problems? USD / CHN analysis

It appears that the People’s Bank of China could no longer keep the yuan low and may have “dropped” to make stops below the market. USD / CNH started the day at 6.4289 and fell to levels not seen in forex since early June near 6.3742. Will the yuan stay just as strong in the currency market or will China’s problems finally be solved? Below are some ongoing Chinese-related topics that the People’s Bank of China should consider:

Evergrande

The Evergrande saga extends to the rest of the real estate and housing market, as other property developers have been downgraded by rating agencies. Evergrande was able to make an interest payment in yuan on Tuesday, but that alone does not comfort the markets. And while the People’s Bank of China has said the fallout from Evergrande can be contained, China is issuing a $ 4 billion bond offering, bringing China’s junk bond yields to their highest level since 2011. Watch for nervousness over the next week regarding the continuation of the People’s Bank of China bailout. .

Repression

The crackdown on the real estate and construction sectors has made things worse in the real estate markets. However, government involvement in recent times has not been limited to real estate markets, as the cryptocurrency, gaming, technology and education sectors have been affected. the cryptomonnaies they were banned. Children up to a certain age are prohibited from playing and the Internet. Private tutoring companies have been subjected to severe restrictions. These restrictions could help exacerbate the effects of the economic slowdown.

Economic data

The third-quarter data from China could raise fears of a slowdown for currency traders trading the yuan abroad. China’s GDP in the third quarter was 4.9% versus 5.2% expected and 7.9% in the second quarter. Industrial production was also weaker than expected for September, standing at 3.1% compared to 4.5% expected and 5.3% in August. Was this weak data an indication of another slowdown in the Chinese economy to come? Just one positive point, retail sales stood at 4.4% in September compared to the 3.3% expected and 2.5% in August. Both the NBS Manufacturing PMI and Non-Manufacturing PMI should be watched through October 31 to see if the slowdown continues.

Taiwan (and now Japan?)

China continues to fly military aircraft over Taiwan in a show of force, with more than 150 aircraft flying over Taiwan on China National Day. The United States had previously sent military personnel to Taiwan to help train forces. In addition, the United States has admitted to having a military presence in Taiwan for more than a year. And just yesterday, China and Russia carried out joint operations sending navel ships through the Tsugaru Strait (international waters), which separates mainland China from its northern island, Hokkaido. One has to wonder if China is trying to test the United States to see if it will send more forces to the region.

China / United States relations

In December 2019, President Donald Trump reached an agreement with China on a trade deal, which would be concluded in stages. So far, they have only made it to Phase 1, and the United States has said that China failed to honor its end of the deal, which will initiate a new review. However, relations had already deteriorated between the two nations. Although many have tried, no one can determine who is to blame for the first coronavirus outbreak. There are also data breach issues involving some Chinese companies, such as TikTok and Huawei, which have led the United States to go so far as to kick some companies off the stock exchanges.

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Power crisis

China has been forced to restrict electricity and power to parts of the country, causing plants to close as energy prices continue to rise, especially for coal. Thermal coal futures have more than doubled since August (although they were limited today). As a result, despite its attempts to reduce its use of coal, China is now forced to increase production to lower prices and maintain power.

Analyze USD / CHN

USD / CNH has been trading lower in the forex market within an orderly channel since May 2020, going from 7.1987 to a low of 6.4116 on January 5, 2021, before trading sideways outside the channel. The pair formed a symmetrical triangle for the full year of 2021 between 6.3524 and 6.5876, before breaking down from the triangle on October 13. However, today when the price fell below the horizontal support from inside the channel near 6.4242, stops were triggered and the pair fell to a low of 6.3721.

USD / CNH daily chart

Source: Tradingview, Stone X

On the 4-hour chart, the dramatic decline in USD / CNH attempts to hit May 31 lows at 6.3524. This is the lowest level in the forex market for the USD / CNH pair since May 2018. Note that the RSI is below 20-1680, which corresponds to extreme oversold conditions. Resistance is not at the height of the breakout level of the previous support at 6.4242.

USD / CNH 4-hour chart

forex usd / chn 19102021Source: Tradingview, Stone X

Some may attribute the sharp decline in the USD / CNH pair to the decline in the US dollar. However, the US dollar index DXY It has recovered almost 50% from today’s lows, while USD / CNH is still near its lows. With all the troubles that China has been facing lately, has the People’s Bank of China thrown in the towel and let the Yuan appreciate in the currency market (at least for today)? However, with extreme oversold conditions and short-term support (past lows), expect a possible rally sooner rather than later!

By Joe Perry, Forex.com » Official site

Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or solicitation regarding the purchase or sale of currency exchange contracts or CFDs. Although the information contained in this document has been taken from sources considered 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 the fact that someone trusts such information.

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