Yuan price forecast November 9 2020

2020-11-09

Yuan rally continues. Forecast as of 09.11.2020Dmitri Demidenko

Enter sell trades and hold them down. This is a perfect strategy to trade the USD versus the CNH. How long the downtrend will continue? Let us discuss the yuan prospects and make up a [USDCNH][1] trading plan.

Monthly yuan fundamental forecast

Even a real cat could bounce if it falls from a great high. On the US election day, the yuan volatility surged up to its all-time high. The information that Donald Trump, despite the polls, could be re-elected, sent the [USDCNH][1] up above 6.77. However, the buyers soon stepped back. Experienced traders knew that the dollar’s surge versus the yuan looked like a dead cat bounce.

The yuan has been 8.9% up against the US dollar from the lows hit in March. There several reasons for renminbi growth. Beijing has fought the pandemic; the Chinese economy is growing faster than other world’s economies, the spread between the yields on the Chinese bonds and Treasuries is broadening, and the growing chance of Biden’s victory. During the trade war of 2018-2019, the renminbi has lost about 11.9% in value, so it has almost fully recovered its positions.

During the election campaign, the democrat announced his willingness to force China to play by international rules and that he would pursue a tighter policy relative to China than that of Trump. However, investors see Biden as a better variant. He is not as wild, eccentric, and unpredictable as Trump. Do, Biden is likely to create more friendly and stable trade relations with China. Biden’s attack on China could be just a part of the election campaign. After all, since the 1970s, Biden has been an ardent supporter of improving relations with Bejing; and in 2011, he held extensive and warm meetings with Xi Jinping.

The tariffs on Chinese imports should remain, but they could be eased, supporting the yuan’s growth. As recent history proves, neither the pandemic nor a particular US president could hinder the process of strengthening China’s position in international trade.

Dynamics of China’s foreign trade

Source : Bloomberg

Due to the pandemic fallout’s efficient management, China, unlike other world economies, has averted the recession. The Chinese GDP, according to the IMF forecasts, should grow by 1.9% in 2020. China’s 10-year bond yield is 3.2%, compared to 0.8% Treasury yield. The talks about Biden’s victory encouraged foreign investors to increase the purchases of China’s stocks up to ¥18.4 billion ($2.8 billion), which is the second record daily rate.

Beijing is willing to fulfill its obligations under the phase-one deal, which is signaled by an increase in the US imports to China compared to October totals.

Dynamics of Chinese exports and imports

Source : Bloomberg

Monthly [USDCNH][1] trading plan

In my opinion, such factors as the divergence in the economic expansion and monetary policy, capital inflows to the Asian markets, lower risks of new trade wars suggest the yuan should continue to rally. Besides, the official Beijing is not willing to intervene and set the [USDCNH][1] bears back. So, it is relevant to [continue][2] to sell the pair on the price rise. The target at 6.5 close, and the renminbi may not stop there.

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Price chart of USDCNH in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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