The Impact of the Coronavirus on USDCNH

The Impact of the Coronavirus on USD/CNH

As the Chinese markets remain closed for the Lunar New Year Holiday, which was recently extended until February 2^nd, the impact of the Coronavirus on China can be seen through the USD/CNH. With the spread of the virus throughout China, southeast Asia, and even across the world, many have questioned what the impact will be on the Chinese and world economy. For example, Germany’s Lufthansa says they will suspend flights to and from China until February 9^th, Starbucks is closing half their stores and said the Coronavirus will have an impact on Q1 earnings, and Morgan Stanley says they are assuming the coronavirus will peak in Feb/March and could cut China’s GDP by 0.5-1% in the first quarter.

If markets are assuming the Coronavirus will have an economic hit on China, then the USD/CNH should be trading higher, which it is. On January 20^th, USD/CNH put in a hammer candlestick formation, which is a one candle formation when price trades to new lows early in the day and bounce later in the day to close near unchanged, forming a hammer. Since then, USD/CNH has been moving higher and traded out of falling wedge. The target for a breakout of a falling wedge is a 100% retracement of the wedge, which is near 7.0865. However, on the move higher, the pair has stalled near the psychological level of 7.0000, which is also near the 200 Day Moving Average.

Source: Tradingview, City Index

On a 240-minute timeframe, USD/CNH has actually been in a channel downtrend since September 3^rd, 2019. After a false breakdown on January 20^th to the hammer lows (on the daily), price moved higher and gapped higher on this past Sunday’s reopen from 6.9265 to 6.9452. The gap has yet to be filled. In addition to the psychological resistance and they 200 Day Moving Average, the stall in price is also near the 38.2% Fibonacci retracement level from the previously mentioned timeframe and the top downward sloping trendline from the channel.

Source: Tradingview, City Index

7.0000 is first resistance level. If price breaks above, 7.02 is the 50% retracement level of the same timeframe and horizontal resistance. The 61.8% retracement level is near 7.06, however there are small resistance levels to stop the pair from moving back up towards 7.19. First support is the gap fill from last weekend at 6.9308. Below that is some minor horizontal support near 6.87, but the large support of recent lows and bottom trendline of the channel hear 6.8448.

As the coronavirus continues to spread, watch for 2 things in particular that may give an indication that the virus may be slowing: 1) the rate at which it is spreading 2)the number of companies which are closing operations for a period until the virus is contained. These will give us a better idea of how well the virus is being contained. And if the coronavirus is contained, we may see the 7.0000 level hold in USD/CNH.

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.