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The USD/CNY pair crashed to the lowest level since 2018 after the relatively strong China economic numbers. The pair is trading at 6.3435, which is about 11% lower than the highest level this year.
Chinese yuan rally continues
The Chinese yuan has been in a strong bullish trend in the past few months. This growth is mostly because of the relatively strength of the Chinese economy as demand rises.
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Recent numbers from China have been relatively positive. For example, data published on Tuesday showed that the country’s trade surplus dropped to about $72 billion in November. This happened as exports rose by 22% and imports jumped by 31.7%. In contrast, in the United States, the trade deficit rose to more than $67 billion.
Additional data from China have been positive as well. For example, last week, numbers from Caixin and the statistics agency showed that the country’s manufacturing and services PMIs remained above the expansion zone of 50 in November. This was a rebound from the previous months as energy prices rose.
Still, the drop of the USD/CNY pair has happened because of the support of the Peoples Bank of China (PBOC). In the past few months, the central bank has avoided intervening in the currencies market. This is likely because the bank has assessed that Chinese exporters are doing better even as the onshore and offshore yuan strengthen.
The Chinese yuan has also rallied since investors have assessed that the Omicron variant will not have a major negative impact on the global economy. Recent data shows that the virus is not as dangerous as Delta and other variants.
Looking ahead, the USD/CNY pair will react to the upcoming US inflation data and the Federal Reserve interest rate decision. Also, the rising political tensions between the US and China will affect the currency.
USD/CNY technical analysis
The daily chart shows that the Chinese yuan has jumped sharply against the US dollar in the past few days. By so doing, the pair has crossed the key support level at 6.3552, which was the lowest level in May. It has also formed what looks like an inverted cup and handle pattern. At the same time, it is below the 25-day and 50-day moving averages.
Therefore, the pair will likely keep falling ahead of the latest Chinese inflation numbers scheduled for Thursday. This could see it drop to about 6.300.
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