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Yuan price forecast December 8 2020

2020-12-08

2020-12-08

Yuan needs a reboot. Forecast as of 08.12.2020Dmitri Demidenko

The [USDCNH][1] continues falling amid the Chinese strong GDP and the PBOC actions. However, if the US-China trade relations do not improve, the yuan could stop growing. Let us discuss the yuan prospects and make up a trading plan.

Fundamental yuan forecast for a year

Just a year ago, no one would believe that international trade and China would be the major drivers for the global economy. In late 2019, China’s economy was quite weak because of the US-China trade war. Numerous trade tariffs hindered both export-import transactions around the world and global GDP. In 2020, everything has changed. Amid the pandemic and the associated high demand for personal protective equipment, medical supplies, computers, and mobile phones, exports rose 21.1% in dollar terms in November from a year earlier, the most since 2011, excluding the Lunar New Year holidays. China’s trade surplus surged to a record of $75.4 billion.

The weakness of the US dollar and the trade balance’s success contributed to the growth of China’s foreign exchange reserves to $ 3.1785 trillion, the highest level since August 2016. The position of the People’s Bank is stronger than ever; the GDP led by exports, according to the OECD, can exceed its size, which took place in Q4 2019, up 10% at once. So, it is natural that the yuan is strengthening against the world’s major currencies. The [USDCNH][1] trend looks like a fall from a sheer cliff, and I am glad to be following this trend. Back in early[ September][2], I recommended selling the pair when the exchange rate was around 6.86. Now, bears are close to the target at 6.5 set in early [October][3]. This is not the limit.

Dynamics of China’s forex reserves and yuan

Source : Bloomberg

Along with divergence in economic growth, I highlighted the potential improvement in the US-China trade relations after Joe Biden’s victory as one of the key drivers of the yuan’s strengthening in Autumn. And although Biden is not yet going to cancel the import duties introduced by the United States in 2018-2019, and the retiring Donald Trump continues to target Beijing imposing new sanctions against China’s officials and delisting Chinese companies from the US exchanges, it is obvious that the reboot in relations between the two leading powers of the world is necessary.

First of all, talks mode should be changed. The form of communication, based on the Twitter of the 45th US president, is hardly reasonable. There should be other diplomatic channels. Besides, Joe Biden must understand that import tariffs cannot solve the foreign trade deficit. A continuous deficit of domestic savings characterizes the US economy; imports are the solution. On the other hand, in China, domestic savings are skyrocketing, which contributes to the growth of exports. An imbalance in foreign trade between the two countries is inevitable, no matter how hard the White House tries to mitigate it with tariffs.

** Yearly[USDCNH][1] trading plan**

I believe some tariffs should be canceled or lowered in 2021. If so, the global trade and GDP will grow, and the global risk appetite will increase, supporting the [USDCNH][1] downtrend towards the target 6.32 [earlier indicated][4]. It is still relevant to sell the dollar versus the yuan on the price rise, as the strategy has been profitable in the second half of 2020.

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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  1. my.liteforex.com/trading/chart?symbol=USDCNH&returnUrl=true
  2. www.liteforex.com/blog/analysts-opinions/usdcnh-forecast-five-reasons-to-buy-yuan/
  3. www.liteforex.com/blog/analysts-opinions/yuan-is-the-forex-leader-forecast-08102020/
  4. www.liteforex.com/blog/analysts-opinions/yuan-will-repeat-dollars-fate-forecast-as-of-19112020/