USD/CNY forms head and shoulders as China economy slows

on Aug 16, 2021
  • The USD/CNY pair has formed a head and shoulders pattern on the 4H chart.
  • China’s house prices rose by 4.6% in July after rising by 4.8% in June.
  • Fixed assets investments and industrial production also retreated.

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The USD/CNY price was in a tight range as investors reflected on the relatively weak Chinese economic numbers. The pair is trading at 6.4778, which was in the same range it was in the past few days.

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China economy slowing

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After staging a major recovery in the past few months, there are signs that the Chinese economy is normalising. Besides, the country is facing a new wave of coronavirus, which is affecting its recovery.

Data published by the Chinese statistics agency showed that several key areas of the economy eased in July. 

For example, the country’s retail sales numbers declined from 12.1% in June to 8.5% in July. This performance was worse than the median estimate of 11.5%. This is notable since retail sales are an important measurement of consumer spending.

Meanwhile, the Chinese house prices rose by 4.6% in July, which was lower than the expected 4.7%. The fixed-asset investment increased by 10.3% in July after rising by 12.6% in June. This was the worst decline since last year. 

The number has been falling after it peaked at 35% in March this year. The fixed-asset investment is an important number since it is a key component of the GDP calculation.

The USD/CNY also reacted to the latest Chinese industrial production numbers. The headline production rose by 6.4% in July, which was lower than the expected 7.8%. 

The situation will likely worsen now that some key parts of China are in lockdown. Last week, the country even partially shut down a major port as part of its Covid-zero strategy. 

The USDCNY will next react to the latest US retail sales numbers and statement from the Federal Reserve chairman. Analysts expect that the sales declined in July as the country battled the new wave of Covid. 

The Fed chair could also join his relatively hawkish colleagues. Last week, Mary Daly said that the bank will start deliberating on QE exit later this year.

USD/CNY technical analysis

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The four-hour chart shows that the pair has been in a tight range recently. On the four-hour chart, the pair is inside the ascending channel shown in black. The pair is along the 25-day and 50-day moving averages while the MACD has been in a downward trend. 

The USD/CNY has also formed a head and shoulders pattern. This signals that the pair will likely maintain the bearish trend as investors target the key support at 6.4600.

CNY Forex