China A50, USD/CNH: Weakening trend in focus ahead of key economic data

Mainland Chinese markets are reopening after Gold Week holidays, having to navigate not only heightened geopolitical risks in the Middle East but also spiking bond yields in the United States which sapped demand for risk assets in elsewhere in the world during their closure. Ahead of key domestic data on inflation, international trade and credit demand during the week, the tricky macroeconomic backdrop will make for an interesting week for China’s A50 share index along with USD/CNH in the FX space.

China A50 breaks below range support

Looking at the opening of mainland equity markets, the most notable technical development has been the breakdown of several bluechip indices, including China’s A50 which has fallen through channel support for the first time since June, hitting a low of 12040 before bouncing ahead of the resumption of trade in underlying securities on Monday.

Given the range break, and with RSI confirming the downward bias, the path of least resistance appears lower right now unless the index can push back into its former range.

Traders may wish to sell rallies back towards 12360 targeting a move towards 12040 or even 11800, the low hit in November last year. A stop above 12400 would offer protection against a reversal, something that is a risk given poor near-term sentiment and positioning in Chinese assets among offshore investors.

For those waiting for more conclusive price action before entering a trade, a push back into the prior trading range would open the door for a potential retest of long-running downtrend resistance dating back several years. The trendline is currently located around 12940, having successfully repelled attempts to break higher twice this year.

CNH resilient to latest bout of USD strength

Outside equities, the price action in USD/CNH has been far more resilient, largely reflecting constant moves from the People’s Bank of China (PBOC) to push back against US dollar strength, mirroring similar measures being taken by Japanese policymakers to support the JPY against the USD.

One look at USD/CNH on the daily tells you the pair has struggled on probes above 7.3300 for much of this year, solidifying this area as a significant resistance zone having seen off a prior wave of USD strength in 2022. With the PBOC continuing to take action to support the onshore USD/CNY rate through fixing the midpoint for daily trade far stronger than what the prior day’s close would imply, it may require a significant strengthening in the USD to deliver fresh highs for USD/CNH.

Given the potential stalemate as USD strength is counteracted by PBOC support, range trading appears the most likely outcome near-term. There are multiple resistance layers located starting from 7.33170 while key downside levels to watch include 7.2700, 7.2400 and 7.1160, the low set in July this year.

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.