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Andreas Zanin
Analysis | June 8, 2021

Outlook and research: USD/CNH

USD/CNH has been a big downtrend but could we see a relief rally in the USD? Our view of the fundamentals and technicals below…

Last week Caixin’s China manufacturing purchasing managers’ index (PMI) rose to 52.0 in May from 51.9 in April supported. The upturn in May was the strongest recorded in the year to date and was supported by better demand domestically and overseas. The sub-index of total new orders hit its highest point in 2021 last month and the gauge for new export orders was at its highest since November.

The USD though is NOT going down it’s rising because it’s as good as it’s going to get in for China in terms of exports and the USD is oversold so we are looking for a rally.

China’s Exports to Fall Going Forward

Shipping costs for Chinese exports are +15% since late April, and up almost 40% YTD This is hitting exporter’s profit margins, and so to are rising commodity prices which have posted their best 12 performance in 40 years…

Chinese exports will also be impacted by the surge in COVID cases in Asia and competition from other nations in the region for China’s export share. A strong Yuan is making exports less competitive and this is not being offset enough by US commodities being priced in USD. Domestic demand is not expanding quickly enough to offset the downturn in exports that lies ahead.

China V US Bonds

In terms of bond yields on the chart below the gap between Chinese and US bonds remains wide but will narrow in our view. The Fed is likely to look to taper bond purchases soon as inflation surges which we have discussed in several articles recently and if the gap narrows this is bullish for the USD. The big day for this and all US pairs will Thursday’s US CPI report which we are looking to bear forecast and boost US Bonds

A lower Yuan will help Chinese exports and we expect the PBOC of China to allow it to fall.

Technical Levels of Support and Resistance

On the daily chart, we have seen prices bounce back to test the key 6.40 level. If we can break above the level and take out the 20 day MA ( Green Line) which has held price since April 09 we could see a major rally to the upside.  Any dips in our view are likely to be held by chart lows. The majority in the market don’t  see a USD rally coming and that’s very often when you get major trend changes. We have seem the USD firm a little but  it could see far more strength from here as the USD corrects its oversold condition.

 

Research provided by LearnCurrencyTradingOnline.com

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