China A50, USD/CNH: Weakening trend in focus ahead of key economic data

Mainland Chinese markets are reopening after Gold Week holidays, having to navigate not only heightened geopolitical risks in the Middle East but also spiking bond yields in the United States which sapped demand for risk assets in elsewhere in the world during their closure. Ahead of key domestic data on inflation, international trade and credit demand during the week, the tricky macroeconomic backdrop will make for an interesting week for China’s A50 share index along with USD/CNH in the FX space.

China A50 breaks below range support

Looking at the opening of mainland equity markets, the most notable technical development has been the breakdown of several bluechip indices, including China’s A50 which has fallen through channel support for the first time since June, hitting a low of 12040 before bouncing ahead of the resumption of trade in underlying securities on Monday.

Given the range break, and with RSI confirming the downward bias, the path of least resistance appears lower right now unless the index can push back into its former range.

Traders may wish to sell rallies back towards 12360 targeting a move towards 12040 or even 11800, the low hit in November last year. A stop above 12400 would offer protection against a reversal, something that is a risk given poor near-term sentiment and positioning in Chinese assets among offshore investors.

For those waiting for more conclusive price action before entering a trade, a push back into the prior trading range would open the door for a potential retest of long-running downtrend resistance dating back several years. The trendline is currently located around 12940, having successfully repelled attempts to break higher twice this year.

CNH resilient to latest bout of USD strength

Outside equities, the price action in USD/CNH has been far more resilient, largely reflecting constant moves from the People’s Bank of China (PBOC) to push back against US dollar strength, mirroring similar measures being taken by Japanese policymakers to support the JPY against the USD.

One look at USD/CNH on the daily tells you the pair has struggled on probes above 7.3300 for much of this year, solidifying this area as a significant resistance zone having seen off a prior wave of USD strength in 2022. With the PBOC continuing to take action to support the onshore USD/CNY rate through fixing the midpoint for daily trade far stronger than what the prior day’s close would imply, it may require a significant strengthening in the USD to deliver fresh highs for USD/CNH.

Given the potential stalemate as USD strength is counteracted by PBOC support, range trading appears the most likely outcome near-term. There are multiple resistance layers located starting from 7.33170 while key downside levels to watch include 7.2700, 7.2400 and 7.1160, the low set in July this year.

-- Written by David Scutt

Follow David on Twitter @scutty

The information on this web site 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. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.