Yuan Consolidates amid PBOC's Warning Against Speculators
YUAN CONSOLIDATES ON PBOC- TALKING POINTS:
- PBOC’s Vice Governor warned against Yuan shorts on Friday.
- He said that China will not engage in competitive devaluation.
- The Yuan may continue to retrace amid the PBOC’s support.
PBOC’s Deputy Governor, Pan Gongsheng, warned against Yuan shorts on Friday. He said that the Central Bank has rich experience and policy tools to deal with market turbulence. He addressed on Yuan speculators specifically: “For those who are trying to short the Yuan, we fought hand to hand a few years ago and are very familiar with each other. It’s still fresh in our memory.”
Regarding the trade war, the Deputy Governor reiterated that China will not engage in competitive currency devaluation; the country has no plan to use the Yuan exchange rate as a tool to cope with external risks.
Pan is also the Chairman of State Administration of Foreign Exchange, the FX regulator. He said that China’s foreign reserves are sufficient. Coupled with other positive factors, this provides a support to maintain the Yuan relatively stable.
Following Pan’s statement, the USD/CNH has pulled back nearly 300 pips as of Friday’s close, from a new 22-month high (low for the Yuan). With the Central Bank’s support, the Yuan may continue to consolidate in the coming week.
From a technical perspective, the USD/CNH failed to break above the channel which started from late August. It may continue to retrace with the band. A major support level to watch is 6.8903, where the bottom-line of the channel converges on the 61.8% retracement of the August decline.
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-- Written by Renee Mu, Currency Analyst with DailyFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.