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USDCNH Analysis: Yuan Rebound Likely to be Tested Soon

USDCNH Analysis: Yuan Rebound Likely to be Tested Soon

2018-07-26 11:00:00
Nick Cawley, Strategist
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USDCNH Price, News and Technical Analysis

  • Chinese Yuan remains weak as US trade wars weigh
  • US dollar likely to get a short-term boost if Q2 GDP expectations are correct.

The DailyFX Q3 Forecasts have just been released and cover all the major asset classes.

USDCNY May Move Higher as EU-US Trade Tensions Ease

The recent small rebound in USDCNY is likely to come under pressure again after the EU and the US eased fears of an all-out trade war yesterday and said that they would work together to address unfair trading practices. Both parties said that they would work towards zero tariffs and trade barriers for non-auto goods with the US adding that they will consider dropping recent tariffs on steel and aluminium. A cessation of trade hostilities between the two giant blocks and the talk of coordinating action against ‘unfair trading practices’ leaves China under the microscope of two of its largest trading counterparties at a time when growth is seen slowing, although not officially.

US - China Trade War Primer

The current US dollar – offshore Chinese Yuan rate is stuck between two Fibonacci levels at 6.6990 and 6.8250 after the recent heavy Yuan sell-off. A weaker CNH continues to counter-balance recent US trade tariffs and further weakness may occur if the US presses ahead with their recently touted $500 billion target of Chinese goods and services. US President Trump remains annoyed about the overly-weak level of CNH, which distorts trade in China’s favour, and may feel even more empowered now that the EU is seemingly on the same page as the US. USDCNY is likely to stay stuck between the two Fibonacci levels in the short-term but any further escalation of action and retaliation between China and the US will see bring resistance back into play.

USDCNH Daily Price Chart (September 2017 – July 26, 2018)

USDCNH Analysis: Yuan Rebound Likely to be Tested Soon

I

nvestors will be looking at Friday’s US Q2 GDP figures with great interest with expectations of an upside beat of already high expecations (currently 4.3%). Market rumour, and it is just rumour, that POTUS has been talking about a very strong number has underpinned the US dollar, although the chart looks weak in the short-term. If growing expectations of a 4.5% to 5% print are met the dollar may push back above the 20- and 50-day moving averages, currently at 94.05 and 94.15.

DailyFX analyst Justin McQueen will be covering Friday’s US Q2 GDP release live from 13:15 BST (12:15 GMT)

US Dollar Index (DXY) Daily Price Chart (November 27, 2017 – July 26, 2018)

USDCNH Analysis: Yuan Rebound Likely to be Tested Soon

If you would like to know how to trade Event Risk we have an in-depth primer here.

If you are new to foreign exchange, or if you would like to update your knowledge base, download our New to FX Guide and our Traits of Successful Traders to help you on your journey.

What’s your opinion on the USDCNH? Share your thoughts with us using the comments section at the end of the article or you can contact the author via email at Nicholas.cawley@ig.com or via Twitter @nickcawley1

--- Written by Nick Cawley, Analyst

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

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