USD/CNH in Focus Amid China Concerns
Fawad Razaqzada | Nov 23, 2022 07:42
- CNH falling due to COVID outbreak
- FOMC minutes in focus
- USD/CNH tests key level
The US dollar will be in sharp focus later when the FOMC's last meeting minutes are published, which means the USD/CNH will become even more important given the risks it faces from the latest wave of COVID in China.
The last FOMC meeting was held before the much weaker than expected October inflation report was published. That CPI report led to a big sell-off in the US dollar and caused stocks, bonds, and gold to rise sharply. Some Fed officials have already revised their views on inflation and the pace of interest rate hikes. So, the market impact of the FOMC minutes might be more subdued than usual.
However, that said, the market will need some clarity after about the terminal interest rates. Additionally, will the Fed signal it will slow down the pace of tightening imminently?
Although the case for peak inflation has grown, the fact that interest rate increases are not yet pausing in the US means the dollar will likely remain supported on the dips.
The USD/CNH faces additional upside risks stemming from weakness in China's economy, the world's second largest. There are concerns that China may tighten its COVID curbs further because of the current wave of COVID. Cases have risen to levels last seen in April when Shanghai was put in a stringent lockdown.
Although China relaxed some restrictions, its zero-COVID policy means the threat of more growth-choking lockdowns is there. This is going to hold back the yuan and potentially risk assets across the board.
Now, the USD/CNH has more than made up the losses we saw Friday and again on Tuesday when the sellers stepped in to defend resistance at around 7.1700 – 1.1800 area. If the USD/CNH now breaks above here on a daily closing basis, then this could pave the way for a run toward the next resistance around 7.2293, the base of the recent breakdown.
Meanwhile, if resistance holds, then the next support is seen around 7.1100, followed by 7.1000. If we get there and that level breaks down, then the long-term bull trend line will come into focus again.
Disclaimer: The author does not hold any of the assets mentioned in this article.
Get The App
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.