Chinese crackdowns hit stock indices send USDCNH higher

The crackdown by the Chinese government on big tech companies, such as Alibaba and Tencent, has spilled over into other sectors, causing investors to flee stock markets. After the government began laying heavy fines and penalties on tech companies over regulation and anti-trust issues, the government has now moved on to other sectors: this time it’s private education. After school tutoring firms have been expanding rapidly in China. However, the government says that these companies are teaching subjects which are already taught in school. Therefore, these firms must register as non-profits and cannot provide returns for investors. As a result, investors are now concerned about “Who will be next?” to be fined and regulated.

The China A50 had been screaming higher from pandemic lows in March 2020 near 11495 to highs on February 18^th near 20603. However, price began to pull back and tested horizontal support at 16440 multiple times before eventually forming a falling triangle. The target for a break of the triangle is the height of the triangle added to the breakdown point. On Monday, the index finally broke below 16440 and fell as low as 14511.6 on Tuesday, down 11.7% over the 2-day period and near the triangle target at 14250! Support in the area where prices stopped falling are a long-term descending trendline from May 2015 (green line) near 14,370 and the 61.8% Fibonacci retracement level from the March 2020 lows to the February 18^th highs near 14,974. Notice how the RSI fell into extreme oversold territory (below 20), indicating the index may be ready for a short-term bounce. Horizontal support below is at 13954 and 12788. Resistance above isn’t until Tuesdays highs of 15,706, then the previous horizontal support (now resistance) at 16440.

Source: Tradingview, FOREX.com

The selloff in China’s stock indices has finally spilled over into the fx markets. Since the beginning of the year, USD/CNH has been trading within a range between 6.3524 and 6.5875. After bouncing from the low on May 31^st, the pair began moving higher and halted at the 61.8% Fibonacci retracement level from the highs to lows. However, for the last month, the pair has been in a very tight range between 6.4506 and 6.5000. On Tuesday, USD/CNH broke higher and traded above the 61.8% Fibonacci retracement level, as well as the 200 Day Moving Average at 6.5079. Horizontal resistance above is at 6.5385 and then the April 1^st highs at 6.5824. Support is just below, at previous resistance (now support) of 6.5079 and then the lows of the recent range at 6.4506.

Source: Tradingview, FOREX.com

Chinese stock indices have taken a hit over the past few days as investors flee on worries of more government regulations across different sectors. On Tuesday, these worries finally caught up to the fx markets and investors bought USD/CNH. If the crackdowns continue, in addition to tense trade relationships, Chinese financial markets may be in for more trouble.

Learn more about forex trading opportunities.

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.