VP Market Research at FXTM provides a great commentary on Chinese Yuan and its prospect for Q4 market!
This article is originally referred from FXTM Market Forecast.
FXTM Brand does not provide services to residents of the USA, Mauritius, Japan (日本), Alberta, British Columbia, Quebec,
Saskatchewan, Haiti, Suriname, The Democratic Republic of Korea, Puerto Rico, and The Occupied Area of Cyprus. Find out more
in the Regulations section of their FAQs.
Time for the Yuan to attempt stability? After issuing a clear “buy” signal to the markets, once the USDCNH concluded trading below 6.70 for the week commencing 6 August, purchasing the Yuan arguably became the trade of Q3 2017.
With the dollar suffering a dramatic decline against a basket of different currencies towards the end of Q2, it was appropriate that the Yuan was set to strengthen in line with other currencies around the globe that appreciated against the dollar, throughout the period of USD weakness.
The question to ask now, is whether the Yuan can continue its advance?
Will CNH continue rising?
I think that it’s time for the Yuan to show some stability.
I am also expecting the USDCNH to attempt to trade in a range around the 6.50’s.
Stability in the currency could encourage capital to remain in China, something that the People’s Bank of China (PBoC) would closely monitor, because it would provide a better platform to encourage foreign investment into China.
Yuan stability could also be on the agenda during the National Congress of the Communist Party, scheduled for 18 October.
How US affects Yuan market?
US interest rate policy is a factor that could be presented as a risk for the Yuan, but with the markets already pricing in an 80% chance of a Federal Reserve interest rate increase in December, it shouldn’t create too much pressure for emerging markets.
Any progress when it comes to potential shifts in economic policy from US President Trump, could be seen as a higher risk for the global markets, including China.
The proposal to cut taxes will be easier said than done.
President Trump has already faced difficulties in his attempt to repeal the unpopular Obamacare, and Trump will likely face even greater difficulties with the proposal to cut taxes, which many feel will likely increase the US deficit.
What is the trend of CNH in technical picture?
When it comes to the technical picture, the sheer volatility that the USDCNH experienced over the previous quarter might make it difficult to identify a clear trend.
We know from the past, that the 6.70 level on the USDCNH is a huge area of psychological interest for investors and potential sellers of the Yuan, would likely wait to see if the pair can once again cross this level, before entering bullish positions.
6.60 is another area of interest for investors, and traders might be waiting for a clean close below this level, before pricing in further gains for the Yuan.
I think that after such unprecedented volatility in the Yuan over the previous quarter, the PBoC would prefer for stability in the currency until the end of year.
Original Source: FXTM Market Forecast