USD/CNY forms rising wedge after worrying Chinese data

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Jun 16, 2021
  • The USD/CNY has formed a rising wedge pattern after the latest data from China.
  • The unemployment rate rose from 5.1% to 5.2% in May.
  • Industrial production and fixed asset investments rose at a slower rate.

The USD/CNY price retreated slightly after the relatively weak Chinese economic data that came a few hours ahead of the Fed decision. The pair declined to6.3977, down from the weekly high of 6.400.

USD/CNY
USD/CNY price action

Chinese economy slowing

China has been the best performing economy in the past few months. It was the first major economy to recover from the pandemic after it recorded a 1% growth in the second quarter of 2020. This growth was mostly because of local consumption as the number of coronavirus cases declined. 

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The Chinese economy also grew as the rest of the world locked down. As this happened, retailers and households started to buy items from China in bulk.

However, there are signs that this economic recovery is slowing down. Data by the National Bureau of Statistics (NBS) showed that the country’s unemployment rate rose from 5.1% in April to 5.2% in May. In the same period, the industrial production declined from 9.8% to 8.8%. This decline was lower than the median estimate of 9%. 

Meanwhile, fixed asset investment, which is an important measure of GDP slowed from 19.9% to 15.4%. Retail sales,, which are essential measures of household spending, declined from 17.7% to 12.4%. Last week, data showed that Chinese inflation also disappointed.

According to the NBS, there are several reasons why the Chinese economy is slowing. First, commodity prices have risen substantially in the past few months and made it expensive for companies. Second, there is an ongoing logjam in global shipping, which is affecting demand. Finally, there is relatively lower demand as most countries reopen.

The USD/CNY pair will next react to the latest Fed interest rate decision. The bank is expected to leave interest rates unchanged and maintain its dovish view judging by the action in the bond market.

USD/CNY technical analysis

USD/CNY
USD/CNY technical analysis

The four-hour chart shows that the USD/CNY pair has been in a tight range recently. This is evidenced by the fact that it is oscillating along the 25-day and 50-day moving averages. At the same time, it has formed a rising wedge pattern that is usually a bearish sign. Therefore, with this pattern nearing its level of confluence, there is a possibility that the pair will soon break out lower. If it does, the next key level to watch will be the year-to-date low of 6.3567.

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