USD/CNY Jumps for a Second Day As Chinese Fundamentals Turn Sour

Summary:
• The USD/CNY pair is up for a second day in a row as sentiment of investors around Chinese fundamentals start to sour.

The USD/CNY pair is up 0.11% this Wednesday as risk aversion returns to the market. The US Dollar has gained across the board following concerns of new lockdowns in China after the Chinese leading public health agency announced that new cases had topped the 1,000 mark. This was nearly 270 cases higher than the previous day’s numbers. China’s rising COVID-19 case count worries investors because of that country’s policy of locking down entire districts to detect new cases. 

Also boosting the US Dollar are heightened bets of a 100bps rate hike in next week’s FOMC decision, even as the Fed enters a blackout period. Further weakening the Yuan are negative Chinese fundamentals coming from its housing sector, where it has been reported that residents in more than 860 districts are wilfully defaulting on their mortgages. The situation has put mortgage lenders in China on their toes, with the Evergrande debacle very fresh in investors’ minds. 

USDCNY Outlook

The USD/CNY pair has bounced off the 61.8% Fibonacci extension level and looks set to continue the breakout move from the symmetrical triangle. The immediate target to the north lies at the 6.7689 price mark (14 July 2022 high). Above this level, the bulls can expect to meet resistance at the 27% Fibonacci extension level at 6.7874, the site of the 17 May 2022 high.

Additional targets to the north are seen at the 6.8080 price level (61.8% Fibo extension), the site of the highs seen on 13 May 2022. These are the near-term targets for the bulls on the 4-hour chart. Conversely, the bears need to see a breakdown of the ascending trendline that intersects the 50% Fibonacci retracement level at 6.7438.

This is the level to beat and a degrading of this pivot opens the door for the bears to march toward the 6.7371 support (61.8% Fibonacci retracement line). Additional targets to the south are located at 6.7276 (78.6% Fibonacci retracement) and 6.7193 (5 July/11 July highs). The 6.6837 support also constitutes an additional downside target if the 6.7000 psychological support is degraded. 

USD/CNY: 4-hour Chart