CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Chinese yuan, stocks and commodities slump

Article By: ,  Market Analyst

 

Well, here we are, more than 2 years into the pandemic and Covid is still roiling financial markets. Concerns about demand have intensified after Beijing locked down parts of Chaoyang District as the virus spread there. This triggered panic as people had hoped that lockdowns would ease in Shanghai rather than more restrictions being imposed elsewhere. But now the prospects of the capital city being put into a full lockdown has unnerved investors worldwide. Not only does this imply weaker demand from China, but it could reignite supply chain woes, further exacerbating inflationary pressures.

The Chinese yuan has fallen for the fifth day in a row, this time by more than 1%, lifting the USD/CNH to its highest level since November 2020. The Aussie and other commodity dollars have followed suit. Chinese equities dropped more than 5% overnight, with European and US futures also feeling the pain. Crude oil, copper and other metals all fell on demand concerns.

So, while the rest of the world’s largest economy are tightening belts, it looks like China might have to loosen its policy in order to keep its economy ticking over at the target rate in the second quarter. A couple of months ago, China set an economic growth target for the year of around 5.5%. This was the lowest level in more than a quarter-century of economic planning. But in light of the recent lockdowns, it might struggle to even achieve that target.

Indeed, fears over the Chinese economy saw the USD/CNH break out from a consolidation pattern last week, leading a big upsurge and follow-up technical buying in this pair (or selling in the yuan):

Source: StoneX and TradingView

 

For as long as the USD/CNH now remains above last week’s high at 6.5477, the short-term path of least resistance would be to the upside, meaning more weakness is likely for the yuan. From here, a move to the shaded region on the chart between 6.65 to 6.70 looks quite likely. Here, the 38.2% Fibonacci level meets prior support-turned-resistance area. I wouldn’t be surprised if this region were to offer only mild resistance, before the rally continues given expectations that monetary policy of the US will further diverge from that of China.

 

 

How to trade with City Index

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

  1. 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

  2. Search for the company you want to trade in our award-winning platform 
  3. Choose your position and size, and your stop and limit levels 
  4. Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024