USDCNH pullback brings potential buying opportunity

[MongiIG]

USDCNH weakness brings price back into Fibonacci support, with rising Chinese Covid cases bringing the potential for another rebound

Source: Bloomberg

 

 

 Joshua Mahony | Senior Market Analyst, London | Publication date: Tuesday 29 November 2022 

Chinese uncertainty brings Yuan volatility

China has returned to the forefront of investor concerns, with protests across the country pushing back against the government as quarantine measures ramp up once again in the face of rising Covid cases. The chart below highlights how the country has struggled to contain the spread of the disease despite continued containment policies across differed regions in a bid to quell that rise. An apartment block fire that killed 10 people has been widely attributed to quarantine measures implemented by the government. While some have called for Xi Jinping to step down, that is unlikely. Nonetheless, the rise of Covid cases and recent protests does highlight the difficult moment the country finds itself within.

Source: OurWorldinData

The USDCNH pair has been reversing upwards of late, as the prospects of a full reopening in China fade. The flip-side of that is a risk-on move which has come to the detriment of the dollar, with the dollar index moving within touching distance of a three-month low yesterday. Nonetheless, the pullback we have seen in USDCNH looks to represent a potential buying opportunity here, with the pair dropping back into the 76.4% Fibonacci retracement level. That highlights the potential for a bullish turn, with a decline through 7.1267 required to negate the upward move evident on the intraday charts.

Source: ProRealTime

From a fundamental perspective, this week looks to provide plenty of volatility. From a Chinese perspective, tomorrow brings the latest manufacturing and non-manufacturing PMI figures. Both of these are expected to decline further into contraction territory. Meanwhile, the US has a whole host of economic data, spanning from GDP and the ADP payrolls on Wednesday, to Friday’s crucial jobs report.