News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Mixed
Oil - US Crude
Bullish
Wall Street
Mixed
Gold
Bullish
GBP/USD
Mixed
USD/JPY
Bearish
More View more
Real Time News
  • Use this technical analysis pattern recognition skills test to sharpen your knowledge: https://t.co/Qgz89PTxnu https://t.co/RMHzAmEuq2
  • Noguchi nominated for BOJ board by Japan's government - BBG
  • $GBPNZD could extend recent losses after surging away from the 100-MA and failing to breach range resistance at 1.9120 - 1.9150 A retest of the monthly low looks on the cards if sellers can drive the exchange rate back below the 21-EMA (1.8956) $GBP $NZD #technicalanalysis https://t.co/uAb9NLF0Bd
  • The British Pound may continue gaining ground against its haven-associated counterparts in the near term. However, the currency may give up gained ground against the New Zealand Dollar.Get your $GBP market update from @DanielGMoss here:https://t.co/cIp4BfbsXT https://t.co/ycIRaUsjUI
  • Commodities Update: As of 03:00, these are your best and worst performers based on the London trading schedule: Silver: 0.44% Gold: -0.05% Oil - US Crude: -0.49% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/B0yuFtrUmB
  • Precious Metals Analysis: Gold and Silver Buoyant as Real Yields Fall - https://www.dailyfx.com/forex/market_alert/2021/01/21/Precious-Metals-Analysis-Gold-and-Silver-Buoyant-as-Real-Yields-Fall.html?CHID=9&QPID=917708&utm_source=Twitter&utm_medium=Moss&utm_campaign=twr #Gold #Silver #XAUUSD #XAGUSD https://t.co/3rrgV0Rl67
  • ECB is rumored to be pursuing yield spread control strategy - BBG
  • Forex Update: As of 03:00, these are your best and worst performers based on the London trading schedule: 🇳🇿NZD: 0.47% 🇦🇺AUD: 0.32% 🇬🇧GBP: 0.17% 🇨🇦CAD: 0.13% 🇨🇭CHF: 0.10% 🇯🇵JPY: -0.01% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/nhcRxr7b1C
  • 🇯🇵 BoJ Interest Rate Decision Actual: -0.1% Expected: -0.1% Previous: -0.1% https://www.dailyfx.com/economic-calendar#2021-01-21
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 100.00%, while traders in Wall Street are at opposite extremes with 71.30%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/EnXWWQT0l2
Strong Trend Favors USD/CNH Gains, but Watch this Key Risk

Strong Trend Favors USD/CNH Gains, but Watch this Key Risk

David Rodriguez, Head of Product

- Risk builds for Chinese Yuan given continued weakness, fresh five-year lows

- Strong volatility in Chinese markets reinforces risk

- Threat of potential government reactions makes holding USD/CNH positions risky

Sharp volatility in Chinese financial markets has helped push the Chinese Yuan to fresh five-year lows, and official reactions have made it clear that China’s central bank is prepared to allow further USD/CNY appreciation. The Offshore Chinese Yuan (CNH) has likewise followed the reference rate sharply lower, but it is important to know that the spread between the offshore and onshore has suddenly surged to its largest on record. Why does this matter?

The CNY is officially the currency which is managed by the People’s Bank of China, while the CNH is the currency allowed to trade offshore (see more here). Hence traders who wish to gain exposure to the Chinese Yuan will do so through the CNH.

The CNH has historically traded within a very narrow range against the benchmark CNY as traders anticipate the People’s Bank of China will keep volatility low in the benchmark domestic currency. Yet a recent surge in the USD/CNH warns that many fear the Chinese central bank may look to force further depreciation in the CNY. And indeed, this is one of the clear signs which warn of the potential for volatility ahead.

Spread between USD/CNY and USD/CNH Grows Near Record as Traders Fear Volatility

Strong Trend Favors USD/CNH Gains, but Watch this Key Risk

Data source: Bloomberg

The People’s Bank of China has responded to such pressures by saying it maintains the ability to keep the CNY stable, and it has likewise made it clear that the Yuan could in fact appreciate at any moment. Chinese officials are clearly under pressure domestically and internationally.

And herein lies the difficulty: The USD/CNH remains in a clear uptrend, but we cannot rule out a sharp countertrend move if and when the PBOC decides it must reaffirm its commitment to exchange rate flexibility.

Such uncertainty can be seen both in the spread between the USD/CNH and USD/CNY (chart above) as well as a sharp jump in volatility prices for the CNH.

Traders are Pricing High Volatility for the CNH through Coming Week

Strong Trend Favors USD/CNH Gains, but Watch this Key Risk

Data source: Bloomberg. Chart: R

Traders should proceed with caution in the USD/CNH until we see a marked contraction in volatility prices as well as the spread between the CNY and CNH. The current market trend favors further USD/CNH gains, but elevated political risk means that there is likewise potential for big short-term declines.

Written by David Rodriguez, Quantitative Strategist for DailyFX.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES