Market Analysis: USD/CNH Falls Amid Chinese Economic Stimulus


Since January, the Chinese yuan has weakened more than 9% against the US dollar due to problems in the Chinese economy, as evidenced by statistics, as well as the bankruptcy of the developer Evergrande.

And today, the People's Bank of China announced that it will reduce the required foreign exchange reserve ratio to 4% from 6%, starting September 15. The move is seen as aimed at slowing down the yuan's fall.

Also, 5 major banks in China are cutting mortgage rates, possibly to reduce the risks of Country Garden going bankrupt.

According to analysts reported by Reuters, the measures taken may be only a temporary solution, but will lead to an increase in problems in the long term.

The chart shows that the USD/CNH rate has declined from the highs of April by approximately 1.4%, while:
→ the price of the US dollar against the yuan is in an uptrend and its median and bottom line can provide support;
→ the rate has support from the level of 7.24, which previously worked as a resistance;
→ the fact that on the first day of September the rate is below the lows of August may be due to the weakening of the US dollar index due to negative trends in the US labor market.

It is possible that the level of 7.24 will become a reliable base for the bulls, from which they will try to resume the main uptrend if the incentives from the Chinese authorities are not enough. Note that the last time the US dollar traded for 7.4 yuan was in 2007.

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