USD/CNY Technicals – Yuan going fast and furious. 6.27 Key

Daily Chart

Yuan kicks off 2013 in style with USD/CNY dropping from 6.31 to current ~6.27 levels. Reasons for such move is obvious – Cliff Deals making everybody optimistic again as risk appetite soars. China, being one of the largest exporters in the world, certainly benefits from global economy getting better. In fact, the world appears to have recovered much earlier than expected, with China’s Exports growing a phenomenal 14.1% amidst a 5.0% analyst expectation. That development alone pushed price lower below 6.27 support, with prices experiencing a slight pullback currently.

The 2013 Yuan gains look to be stronger than other major currencies despite the shocking FOMC minutes that briefly brought USD strength back into the game. Both EUR/USD and GBP/USD failed to retake 2013 highs post Cliff Deals, while the Yuan not only shrugged the USD gains off, but managed to carve out a new 2013 low in the process. Despite such feats, Stochastic is warning of a temporary pullback based on current readings. Simply put, this gain in Yuan is too fast too furious, that is if you believe what Stochastic is telling you. Current readings are lower than the trough formed on Nov 14/15, yet in absolute price level terms we are somewhat equal. This is not to say that price cannot break 6.27 while Stochastic continue to remain “Oversold” (current Stochastic level is 9.29, vs previous low of 25.23) as that is what it’s prone to do, but bears should definitely be aware of any upside risk despite downside momentum looking strong right now.

Weekly Chart

From the weekly chart, we can see that for the entire 2012, price traded between 6.26 – 6.36, a 1,000 pip range. Do not be fooled by this figure, as this only equate to a change of 1.6%, when put in EUR/USD terms ~200 pips. Usually after a long consolidation period, the following trend/breakout would be significant – see Q3/Q4 2010 – Q4 2011. Even though the Central Government has a limit in place that prevents Yuan from moving beyond 1% of the daily “Central Parity” fix, recent observations indicate that PBOC has been more willing to allow further appreciation of the Yuan. Across Beijing, Off-Shore Yuan (CNH) has also reached an all-time low. If Xi Jinping stays true to his word, we could see Yuan breaking current consolidation range and head to lower pastures.

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