Is It Time to Start Watching USD/CNH Again?
September 25, 2019 11:38 AM
The risk of further escalation in the ongoing trade war remains elevated.
With traders’ attention jumping from the ECB’s “QE Infinity”, to the seizing up of the repo markets, to the Federal Reserve’s “hawkish cut”, to Parliament’s resumption, to fears about impeachment (and that’s just over the last two weeks!), developments on the US-China trade front have seemingly shifted onto the backburner. When it comes to global economic growth though, the ongoing US-Sino trade dispute may be the most important storyline to watch.
Today brought two new conflicting headlines to the fore. First, the US imposed new sanctions on five Chinese nationals and six entities for knowingly transferring oil from Iran in violation of US sanctions. Much like last year’s arrest of Huawei’s CFO in Canada, these geopolitical developments are ostensibly separate from the ongoing trade negotiations, but with the US seemingly focused on containing China’s influence in any way possible, the news still represents a negative sign for the prospects of a near-term deal.
Speaking of which, President Trump (perhaps in an effort to redirect attention from the scrutiny he’s receiving around a July call with the Ukrainian President) proclaimed that a trade deal with China could come “sooner than you think.” The President has shown a pattern of projecting optimism around trade any time the stock market stumbles, but these comments appear incongruent with his hawkish speech toward the country in yesterday’s UN meeting. In any event, the People’s Republic will be focused on celebrating its 70th anniversary next week, so any substantial talks will likely be on hold for the near term.
Turning our attention to USD/CNH, the US dollar continues to put in higher highs and higher lows against China’s currency. Though rates have eased off the early-September peak near 7.20, the pair has turned higher over the last week and is quietly trading back to its highest level in nearly three weeks above 7.13:
Source: TradingView, FOREX.com
Rather than conducting deep technical analysis on a heavily-controlled currency, readers would be wise to note that the longer-term trend is still toward a weaker yuan, and that as long as USD/CNH remains above 7.00, the risk of further escalation in the ongoing trade war remains elevated.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.