Forex Trading Library

Still Worried About China?

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For the past few years, if you were following the business news bulletins anywhere in the world, you should have noticed that many were warning of the situation in China.

The headline is almost the same everywhere “China’s slowing down”. In many occasions, many were blaming China, demanding for broader reforms.

However, maybe they forgot something very important, China was the major driver of the global growth, who pushed the global economy out of the financial crisis.

With more than 11% of GDP back then, while the rest of the world was in a deep recession, it was obvious to see some slowing down in China to implement reforms.

Earlier this morning, a bunch of Chinese data was released, and most of the data came in better than expected.

GDP Stabilized Once Again

The YoY GDP showed some encouraging signs in Q2 of this year, showing a growth rate of 6.9%, despite the fact that the estimates were too slow down to 6.8%.

This is the second stabilization in a row at the same rate, which also matches the highest growth rate since Q3 of 2016.

In Q1 of 2016, the Chinese GDP posted the lowest growth rate since 2009 at 6.7%. Since then, it has been growing gradually, which might be the bottom of the slowing down cycle.

Positive Retail Sales & Industrial Production

Both came in with a surprise higher, despite the fact that the estimates were to slow down further.

The YoY Retail Sales advanced to 11% in June compared to 10.7% in May, while the estimates were to slow down toward 10.6. This is the highest YoY retail sales since December of 2015.

The Industrial Production was supposed to remain at 6.5% in June. However, it came in with a surprise higher, reaching 7.6% in June, which is the highest level since March. This is also the second highest reading since the end of 2014.

CNY Near The Highest Level Since November

The USDCNH had peaked at the end of last year around 6.95 before it declined gradually back to 6.76 earlier this morning.

The decline comes after a continuous devaluation since 2015. So far, USDCNH lost around 2.8% since the beginning of this year.

Yet, the devaluation had a notable positive impact on China, including Growth and Exports. However, China also noted that they are not willing to devalue the Yuan further. This doesn’t mean that CNH might continue to rise to continue this year’s trend.

 At the same time, most of CNH strength is supported by the better than expected economic releases, in addition to the expectations of possible measures by the PBoC over the coming month, including the possibility to raise the Reserve Requirement Ratio.

From a technical point of view, the next immediate support stands at 6.76, which should be watched very carefully, as a breakthrough that support would clear the way for further declines ahead, probably to November of last year lows around 6.7450’s.

On the upside view, any upside retracement is likely to remain capped below 6.78. Any break above that resistance would clear the way for a longer retracement, which may extend toward 6.80 and possibly 6.84.


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