{x} | Trading.live

Fundamentals

The US: The Fed raised interest rates by 25 basis points in May as expected. Recent Fed officials still maintain hawkish, including the Fed's No. 3, New York Fed President Williams, who said that the current inflation is still too high, the Fed did not explicitly state that the rate hike cycle has ended and will pay close attention to the impact of banking sector pressure on the economy. Meanwhile, Biden and McCarthy (Speak of the House) negotiated about the US debt ceiling issue but failed to achieve a substantive breakthrough. Biden explained that the US will not be a debt default and will cut government support and fiscal deficit. In addition, both Parties in the US are still fighting over the debt ceiling, leaving little attention on the banking crisis, the loss of deposits continues, and the situation is losing further control. Thus, investors should be highly alert to the recent evolution of the crisis to the next more severe stage. The US economy may be destined to enter a difficult stage this year.  

China: Exports grew 8.5% YoY in April, down 6.3% from March, and -6.4% MoM, well below seasonal data and at a record low YoY growth rate. These data highlight the continued weakness in external demand as the order backfill dividend fades. Besides, imports were -7.9% YoY (the expected value was -0.2% and the previous value was -1.4%), while the trade surplus was $90.21 billion. A sharp decline in imports indicates weak domestic demand, but also partly caused by the decline in processing trade which led to a decline in imported raw materials.

In general: April import and export data have been released, suggesting a cooldown in trading, and global demand fell significantly. Also, there may be a global slowdown in economic growth. Specifically, China's one-time dividend of order backfill in April has faded, while regarding March exports, a recorded low of MoM is created. However, from the data of neighboring countries, South Korean and Vietnam's exports continued to plunge in April, with South Korea's exports falling 14.2%, and Vietnam's exports falling 17.2%, a bigger decline compared to March data. Instead, China's exports to emerging markets are growing faster than developed economies, which hedge against the decline in exports to developed countries to some extent. This also demonstrates that there is no basis for a significant devaluation of the CNH.

Whether it is geopolitical relations or China's domestic stock market, the sentiment is not favorable to the CNH in the short term. Nonetheless, perhaps the last interest rate hike in the US this year has been settled, and the USD will ultimately return to economic fundamentals even without a rate cut at the end of this year. Although China's economy recovered significantly after the pandemic, the expected price scissors of overseas recession have weakened. But China's economic growth rate may maintain at 5.5% or above, while the US recession is inevitable, just a matter of seriousness. Therefore, the general direction of the CNH will be upward during the year.

Technical Analysis

Referring to the daily chart, MACD is sticking near the middle axis, without any dominations from bulls or bears. In addition, the 5-day and 10-day SMAs are sticking closely, putting a question mark on the future trend. Before breaking through the 10-day SMA (6.92), USDCNH may face the risk of oscillating upwards. The initial support will be near the low of May 4th (6.895) or refer to 6.9. If this support is lost, the short-term bearish signal will be added. Further strong support will be at 6.8, near the low of this ascending channel.

USDCNH has been firmly above 6.90, indicating strong support below, and the possibility of a rebound need to be noted. If USDCNH can effectively break through the previous high of 6.96, then strengthens the short-term bullish signal. Further strong resistance will be 7.00.

Trading Recommendations

Trading direction: Short

Entry price: 6.9600

Target price: 6.8000

Stop loss: 7.02000

Support: 6.8500/6.7000

Resistance: 6.9600/7.0100