Could the PBOC allow USD/CNH to head for 7.000

Over the past few days we have seen a host of data from China miss the mark and revive fears of a global slowdown. New bank loans in July were less than a quarter seen in June with job concerns, a property crisis and rise in COVID cases saw companies reluctant to take on fresh debt. And credit demand is expected to remain weak against the current backdrop of concerns. Retail sales fell to 2.7% y/y and investments hits a YTD low. Homes prices also fell for an 11^th consecutive month. And this is despite M2 money supply rising to a 6-year high of 12%. As the saying goes - you can lead a horse to water, but you can’t make them drink it.

The data prompted the PBOC (People’s Bank of China) to unexpectedly cut their 1-year and 7-day lending rates by 10 basis points. However, it is debatable as to whether these cuts will have their desired effect, given credit demand is low due to fears of a slowdown.

A risk-off session endued yesterday, with metals, oil and commodity currencies all pointing lower. A bearish engulfing day formed on gold, roll over from 1800 and close beneath key support at 1783. WTI briefly fell to its lowest level since February, and its downtrend form the June high suggests a bearish breakout is soon approaching. JPY and USD were the strongest majors as they attracted safe-haven flows. Yet Wall Street looked past these concerns and continued higher, as equity traders focussed on the deflationary aspect of this weak data – which means the Fed may be reluctant to hike interest rates so aggressively.

Read our guide on the PBOC (People's Bank of China) and inflation

Speculators appear to favour a higher USD/CNH

A market we’re keeping a close eye on is USD/CNH. Yesterday weas its most bullish day since the pandemic (March 2020) as weak data from China likely means that Beijing could allow their currency to slide to help support the economy. Yield differentials between the US and China also remain supportive of higher prices, and we note that the offshore yuan (CNH) continues to trade at a premium to onshore (CNY), which shows speculators favours UD/CNH to continue higher.

USD/CNH daily chart:

USD/CNH began a strong uptrend on the daily chart in February, although it has been within a sideways consolidation since May. The 50-day eMA has provided support throughout the consolidation, and yesterday’s strong bullish candle confirmed a breakout from a symmetrical triangle. The pattern projects a potential target around 7.000, which is just below a historical resistance level and a 78.6% Fibonacci projection.

How to trade with FOREX.com

Follow easy steps to start trading with FOREX.com today:

Open a Forex.com account, or log in if you’re already a customer.
Search for the pair you want to trade in our award-winning platform.
Choose your position and size, and your stop and limit levels.
Place the trade.

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.