The USD/CNY pair is on track for its sixth straight weekly gain after the relatively weak Chinese consumer and producer price index data. It is trading at 6.4857, which is about 2% above the lowest level in May. The pair last had six consecutive weekly gains in 2018.
China inflation disappoints
The USD/CNY price is reacting to the latest Chinese inflation data. The numbers revealed that the headline consumer price index declined by 0.4% month-on-month in June after dropping by 0.2% in the previous month. This decline was worse than the median estimate of -0.1%.
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As a result, the consumer price index declined from the previous 1.3% to 1.1%. Still, analysts expect that the Chinese inflation will rise by about 0.80% next year. The government in Beijing has set an inflation target of around 3%.
The producer price index (PPI) remained elevated but in line with expectations. The headline PPI declined from 9.0% in May to 8.8% in June. As a result, the gap between the PPI and CPI continued to widen.
The Chinese inflation data came a day after the country’s government bonds fell sharply after the cabinet agreed to use timely cuts in banks’ reserve requirement ratios to boost the economy. The news provides further signals that the Chinese economy was indeed slowing down.
The USD/CNY is also reacting to the happenings in the US bond market. The benchmark 10-year yield declined to 1.25% on Thursday, the lowest level since early February. The 30-year yield also declined to 1.900%. While the yields rose in the overnight session, they remain substantially lower than their highest level this year.
The bond performance happened after the latest FOMC minutes. The minutes showed that some policymakers were still worried about the US recovery. Others made the case for tapering of the quantitative easing policy.
USD/CNY technical analysis
The USD/CNY pair rose to a high of 6.4911 in the overnight session. On the four-hour chart, the pair moved above the 25-day and 50-day exponential moving averages (EMA). It has also formed a channel that is shown in black. It also seems to have formed an inverted head and shoulders pattern. Therefore, the pair will likely break out higher as investors target the next key resistance at 6.500. A move below 6.4600 will invalidate this outlook. In a note, analysts at ING said that they had revised their USD/CNY forecast from 6.3 to 6.45.
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