Market News & Analysis
USD/CNH: Waving the All-Clear Flag?
Matt Weller, CFA, CMT January 15, 2020 9:06 AM
From a geopolitical perspective, this week’s biggest event is the planned signing of the Phase One” trade deal between the US and China, scheduled for Wednesday’s US session.
The market has cheered the recent progress toward an initial deal, especially as it deterred further tariffs between the two countries, but readers would be wise to remember that the majority of the imposed tariffs remain in place. And, as Bloomberg reported earlier today, those tariffs are likely to stay in place until after the US presidential election in November as the US evaluates China’s compliance with the agreement. US Trade Representative Lighthizer and Treasury Secretary Mnuchin made this explicit, noting that “[t]here are no other oral or written agreements between the U.S. and China on these matters, and there is no agreement for future reduction in tariffs.”
In other words, trade policy is still a “brake” on global growth, albeit one that is no longer being pressed as hard.
The headlines reminded traders how far apart the US and China are from a comprehensive agreement, erasing the morning gains in US stock indices. In the FX market, the USD/CNH exchange rate has been a key barometer of health of the US-China relationship, and it recently fell to its lowest level since mid-July, signaling general optimism:
Source: TradingView, GAIN Capital
While rates are ticking higher after today’s headlines, the pair remains in a textbook downtrend, with a clear string of lower lows and lower highs since the early September peak near 7.20. Therefore, if we see a “buy the rumor, sell the fact” trade in the yuan on the signing of the trade deal, traders may favor selling bounces back toward the key 6.95 level later this week. Alternatively, a move all the way back above 7.00 would suggest that the situation is re-escalating and shift the bias in favor of the bulls.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.