Trading Analysis Corner

In today’s Asian session, traders got their first glimpse into how the world’s second-largest economy has been performing in April. To wit, China’s HSBC Flash Manufacturing PMI figure came in at 48.3, painting the same subdued picture that it has for the past few months. China bulls may take solace in the fact that this was the first time the measure has improved since back in October 2013, but traders will want to see if the figure can get back above the key 50 level, indicating expansion rather than just stabilization, before brushing off concerns of a slowing economy.

The People’s Bank of China (PBOC) also appears worried about the lackluster economic performance, and the central bank recently took two steps to try to head off economic weakness. First, the PBOC continues to set its central parity rate for the USD/CNY at higher levels, leading to more weakness in Chinese yuan. The central parity rate for USD/CNY currently sits at 6.1599, near its lowest level since Sept. 2013, and the PBOC hopes that the ongoing weakness in its currency will increase exports and stimulate economic growth.

Beyond the day-to-day tinkering with the exchange rate, the PBOC also took a token step of selectively cutting its reserve requirement ratios for rural banks yesterday. By requiring these banks to hold less excess cash, the Chinese government hopes that the banks will encouraged to lend more money and provide much-needed funds to China’s rural areas. In our view, this action is largely symbolic as it does nothing to boost growth in China’s largest cities, where most economic activity takes place. A country-wide cut for all Chinese banks would be far more interesting from a macroeconomic perspective, but the PBOC clearly prefers to keep that ammunition in reserve for now.

Technical View: USD/CNH

As a result of the above data and actions, the CNH (off-shore Chinese yuan) has dropped to a new 14-month low against the US Dollar. The USD/CNH rallied up to test the 61.8% Fibonacci retracement of the July 2012 to January 2014 drop at 6.2486, a level that may provide stiff resistance for the pair moving forward. Meanwhile, the ADX indicator shows that the bullish trend in USD/CNH remains very strong, with current readings well above the 20-25 area that delineates trending and rangebound markets.

If the USD/CNH breaks above 6.2486 resistance, the strong trend could continue in the days and weeks to come, especially if the PBOC takes more aggressive actions to ease financial conditions. Meanwhile, as long  as the pair stays above its 20-day MA at 6.2140, the medium-term uptrend remains intact. Only a break back below that indicator would shift the technical bias back to neutral in our view.

USDCHN

This research is for informational purposes and should not be construed as personal advice. Trading any financial market involves risk. Trading on leverage involves risk of losses greater than deposits.

Recommended Content


Recommended Content

Editors’ Picks

USD/JPY pops and drops on BoJ's expected hold

USD/JPY pops and drops on BoJ's expected hold

USD/JPY reverses a knee-jerk spike to 142.80 and returns to the red below 142.50 after the Bank of Japan announced on Friday that it maintained the short-term rate target in the range of 0.15%-0.25%, as widely expected. Governor Ueda's press conference is next in focus.  

USD/JPY News
AUD/USD bears attack 0.6800 amid PBOC's status-quo, cautious mood

AUD/USD bears attack 0.6800 amid PBOC's status-quo, cautious mood

AUD/USD attacks 0.6800 in Friday's Asian trading, extending its gradual retreat after the PBOC unexpectedly left mortgage lending rates unchanged in September. A cautious market mood also adds to the weight on the Aussie. Fedspeak eyed. 

AUD/USD News
Gold consolidates near record high, bullish potential seems intact

Gold consolidates near record high, bullish potential seems intact

Gold price regained positive traction on Thursday and rallied back closer to the all-time peak touched the previous day in reaction to the Federal Reserve's decision to start the policy easing cycle with an oversized rate cut.

Gold News
Ethereum rallies over 6% following decision to split Pectra upgrade into two phases

Ethereum rallies over 6% following decision to split Pectra upgrade into two phases

In its Consensus Layer Call on Thursday, Ethereum developers decided to split the upcoming Pectra upgrade into two batches. The decision follows concerns about potential risks in shipping the previously approved series of Ethereum improvement proposals.

Read more
Bank of Japan set to keep rates on hold after July’s hike shocked markets

Bank of Japan set to keep rates on hold after July’s hike shocked markets

The Bank of Japan is expected to keep its short-term interest rate target between 0.15% and 0.25% on Friday, following the conclusion of its two-day monetary policy review. The decision is set to be announced during the early Asian session. 

Read more
Moneta Markets review 2024: All you need to know

Moneta Markets review 2024: All you need to know

VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.

Read More

Majors

Cryptocurrencies

Signatures