US Dollar Forecast: USD Falls, USD/CNH Nears 1-Year Lows on US-China Optimism
US Dollar, Chinese Yuan Key Points
- US and Chinese lieutenants agreed to a “preliminary framework deal” over the weekend, boosting risk appetite across the board.
- After traders looking ahead to the Trump-Xi meeting as a major event risk all month, the bigger market mover this week may be more traditional economic data
- USD/CNH bears have the upper hand for the moment, with a break below bullish trend line support potentially exposing the pair’s one-year low near 7.09 next.
It’s a new week, and traders are feeling optimistic about the prospects for (yet) a(nother) US-China trade truce after positive talks between high-level lieutenants last weekend.
Over the weekend, US Treasury Secretary Bessent and China’s Vice Premier He Lifeng agreed to a “preliminary framework deal” after two days of talks in Kuala Lumpur, and the comments from both sides of the Pacific couldn’t be more positive. In his recap of the meetings, Bessent said that he expects a “very productive” conversation between Presidents Trump and Xi later this week and that the additional 100% tariffs President Trump threatened last week were “effectively off the table.” Meanwhile, China’s Foreign Ministry confirmed that the country has reached a “basic consensus” with the US, and the SCMP said the talks signaled “a de-escalation of tensions.”
While there’s always a chance of talks going unexpectedly south, the market has essentially fully discounted a trade truce between the two countries by this point, and prediction market traders are pricing in essentially no chance of the threatened 100% tariffs going into effect:
Source: Polymarket
After traders looking ahead to the Trump-Xi meeting as a major event risk all month, the bigger market mover this week may be more traditional economic data, including four top-tier central bank earnings, key inflation reports out of the Eurozone and Japan, and earnings reports from five of the “Magnificent 7” tech companies.
Chinese Yuan Technical Analysis: USD/CNH Daily Chart
Source: StoneX, TradingView
Looking at the chart, USD/CNH stalled out at its declining 50-day EMA earlier this month and rolled over to retest its 3-year bullish trend line near 7.10 once again. With the major medium-/longer-term moving averages trending lower, USD/CNH bears have the upper hand for the moment, with a break below the trend line potentially exposing the pair’s one-year low near 7.09 next.
While the fundamental situation isn’t fully settled yet, technical traders would need to see a bounce off trend line support and confirmed break above 7.15 before shifting to a more durable bullish bias on the pair.
-- Written by Matt Weller, Global Head of Research
Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX
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