Further appreciation in the Renminbi seems reasonable with the break of long term declining channel we have been reviewing. Following yesterday’s better than expected GDP and Production data from China, the bid is in the Yuan from a political, speculative (due to the better data) and now technical perspective and it will be interesting to see how much China can/will slow the appreciation.
The Yuan continued to appreciate this Asian session, moving the USDCNH pair toward new lows and through trendline support on the back of an unchanged but expansionary HSBC Services PMI release. The USD is however gaining against most other pairs as the risk off sentiment is continuing from yesterday with Asian equities lower and US futures in negative territory.
As we advertised yesterday the USDCNH pair had been under pressure and was poised to test trendline support, which the pair has done and since appreciated mildly.
Looking at the USDCNH chart we’ve been examining, the pair moved higher since we last visited it, however former trendline support has held as resistance and the pair has moved through the November lows to new lows. Some are speculating that the PBOC could be encouraging a stronger currency to continue the globalization of China and encourage the use of its currency. Yuan NDF’s have moved higher very quickly.
After breaking through some resistance the USD rally stalled and we saw the USDCNH move lower with some help from the Bank of China. If one believes that China’s economy has hit the skids and bubbles are about to burst, a lot of easing could be on the horizon out of China that could propel the pair back higher. Currently it is pressing against what was developing as trendline support and perhaps a break back into the channel could prove bullish in the short-term.