- The PBoC set the yuan midpoint at 6.6123 / dlr from the last close at 6.6079.
- Uncertainties prevail, but USD / CNY technical analysis indicates a correction.
The USD / CNY has been relentless in its search for lows since the breakdown of the support structure in April 2020 and the US election which weighed heavily on the US dollar has just tipped the pair overboard.
However, the pace of CNY appreciation after Chinese markets reopened after the Golden Week holiday has already raised some concern among officials.
The risks from here are actually balanced given the measures the People’s Bank of China recently announced, such as reducing the risk reserves ratio for currency futures (from 20% previously to 0 %) as well as the reduction in the cost of coverage. and encourage FX futures sales.
Taken together, the measurements suggest increased near-term downside risks for the CNY as well as greater volatility for the CNY as uncertainty around the US dollar prevails.
“We believe that China still wants a stable hard currency as a means of attracting entry and maintaining domestic confidence,” analysts at TD Securities explained.
Meanwhile, new Select chairman Joe Biden will likely keep his China policy opaque for a while, leaving markets perplexed.
However, analysts at ANZ Bank have argued that while the Sino-U.S. Relationship will remain uncertain, China will prefer to gradually reduce its current and capital account exposure to the U.S. dollar.
The authorities could promote direct conversion between the yuan and other currencies in several ways. ”
USD / CNY technical analysis
From a technical standpoint, one would expect that we would see a significant correction in the value of the USD / CNY given the number of unbroken months we have seen the cross deteriorate without a break:
We might see a relatively shallow correction at some point as highlighted by the green bullish arrow.
However, a more significant correction would target the structure higher and towards the cleavage of the M formation with, first, the confluence of the 38.2% Fibonacci retracement and an average reversion of 50% thereafter.
From a weekly perspective, an average 50% reversion correlates with the first resistance structure above.
Meanwhile, from a day-to-day perspective, the 38.2% fits well with the end-October and earlier support structure: