Market Analysis: Chinese Yuan Falls to Year's Low

Why is the yuan falling?

→ Strong US dollar. Yesterday it became known that the number of applications for unemployment benefits in the US amounted to 216k for the week — below the forecast of 232k applications. This is the lowest level since February.

→ Worsening problems in the Chinese economy. Yesterday's data from the General Administration of Customs of the People's Republic of China showed that the volume of exports in August decreased by 8.8% in annual terms — the decline in exports is recorded for the fourth month in a row.

As the chart shows, the USD/CNH rate reached 7.36 today. According to some sources, this is not only the minimum for the yuan for 2023, but also the minimum for 16 years (it depends on whether the 2022 low is considered broken).

Bullish arguments:

→ The price is within the ascending channel. The dynamics develop in its upper part, which indicates the strength of the trend.

→ The price fell below 7.27 only for 1 day, forming a candle with a long lower shadow. The recovery occurred quickly, indicating the strength of demand.

→ The size of the B-C retracement corresponds to the size of 50% of the A-B impulse. This is the proportion for a normal correction within a stable trend.

→ 3 candles on September 5-7 can be classified as a bullish 3 White Soldiers pattern. Statistically, after the formation of the pattern, we should expect continued growth.

Bearish arguments:

→ If the trend continues, the rate may reach the upper boundary of the upper channel. There, the bulls can take profits, which will weaken the trend.

→ The FT reports the words of Ken Cheng, chief FX strategist for Asia at Mizuho Bank: “there is a growing likelihood that the People's Bank of China will adjust the currency band.” That is, as in the case of the yen, one should be prepared for government intervention in order to protect the currency.

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