Chapter 5  USDCNH: Gaining Momentum from Oscillations, the Longer the Higher (4.19)


USD: Fed officials remain hawkish, and the market's bets on a 25-bps rate hike in May rose to 90%. One of the Fed's "big hawks", Bullard, said he was in favor of keeping raising interest rates to deal with persistent inflation and that recession fears were exaggerated. The Fed's Bostic, on the other hand, claimed it expects another rate hike, with the baseline forecast being that rates will remain unchanged for quite some time after the next hike. This will allow the USD to rebound with support at the year's lows in the short term, but it is expected that interest rates may be cut before the end of the year due to the recession when the USD will have a more fluid downside.

CNH: The data from China's National Bureau of Statistics showed that the first quarter GDP grew 4.5% YoY, the growth was rate 1.5% higher than the previous quarter, while the QoQ growth reached 2.2%, indicating that the economy is recovering rapidly after the pandemic. Besides, the first quarter's economic growth will be fundamental for future rapid growth in the following quarters. Due to last year's low figures, it is expected that the second quarter's GDP growth rate could reach 8% with an estimated annual growth rate of 5.5% or above.

In general: CNH has been narrowly oscillating between 6.85 to 6.90 from a month earlier. The extraordinary oscillation in USD could hardly affect CNH, that is, from a technical perspective, the longer the time, the higher the appreciation. Perhaps, CNH is ready to surge at any moment.  

Released on April 18th, the economic data for the first quarter, and March economic data, were both "outstanding", with China's annual GDP rate for the first quarter not only "above" market expectations, but also up by 1.5% compared to the previous value. Even the annual rate of total retail sales of consumer goods, which has been criticized, rose by 3.2% QoQ.  

In addition, China's urban unemployment rate also declined, not only being "below" market expectations in March but also dropping by 0.3% compared to the previous value. In other words, in March, both the employment situation and the consumption situation are coming out of the woodwork and are gradually "improving", which ameliorates investors' confidence in CNH. Investors can hold a long-term bearish USDCNH position, with optimism that the bottom could see 6.5 or even lower.  

Technical Analysis

Regarding the daily chart, USDCNH has been running between 6.85 to 6.90 since the middle of March, accumulating sufficient momentum for enough time and may prepare for a breakthrough. Technically the lower space is larger while there is strong resistance at 7.0 above, adding difficulties to opening further. Nonetheless, the strong support below is at 6.7. Considering USDCNH is now at the upper area of the oscillation since more than a month ago, testing the resistance nearby with a trend of plunging downwards and a weaker upward momentum. Thus, it is recommended to go short with small positions in the near term or build short orders at highs in the long term.  

USDCNH: Gaining Momentum from Oscillations, the Longer the Higher  (4.19)-Pic no.1

Trading Recommendations

Trading direction: Short

Entry price: 6.90500

Target price: 6.70000

Stop loss: 6.95000

Support: 6.85000/6.70000

Resistance: 6.92000/7.01000

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