Chinese yuan, stocks and commodities slump

Well, here we are, more than 2 years into the pandemic and Covid is still roiling financial markets. Concerns about demand have intensified after Beijing locked down parts of Chaoyang District as the virus spread there. This triggered panic as people had hoped that lockdowns would ease in Shanghai rather than more restrictions being imposed elsewhere. But now the prospects of the capital city being put into a full lockdown has unnerved investors worldwide. Not only does this imply weaker demand from China, but it could reignite supply chain woes, further exacerbating inflationary pressures.

The Chinese yuan has fallen for the fifth day in a row, this time by more than 1%, lifting the USD/CNH to its highest level since November 2020. The Aussie and other commodity dollars have followed suit. Chinese equities dropped more than 5% overnight, with European and US futures also feeling the pain. Crude oil, copper and other metals all fell on demand concerns.

So, while the rest of the world’s largest economy are tightening belts, it looks like China might have to loosen its policy in order to keep its economy ticking over at the target rate in the second quarter. A couple of months ago, China set an economic growth target for the year of around 5.5%. This was the lowest level in more than a quarter-century of economic planning. But in light of the recent lockdowns, it might struggle to even achieve that target.

Indeed, fears over the Chinese economy saw the USD/CNH break out from a consolidation pattern last week, leading a big upsurge and follow-up technical buying in this pair (or selling in the yuan):

Source: StoneX and TradingView

For as long as the USD/CNH now remains above last week’s high at 6.5477, the short-term path of least resistance would be to the upside, meaning more weakness is likely for the yuan. From here, a move to the shaded region on the chart between 6.65 to 6.70 looks quite likely. Here, the 38.2% Fibonacci level meets prior support-turned-resistance area. I wouldn’t be surprised if this region were to offer only mild resistance, before the rally continues given expectations that monetary policy of the US will further diverge from that of China.

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.