Originally published by AxiTrader
There is little doubt that under the leadership of president Xi Jinping Chinese authorities are trying to restructure their economy away from its intensive focus on investment to a more mature economy's reliance on consumption and services.
It's not been an easy process as the PBoC and its counterparts at SAFE have had to lock down the capital account in order to stem the sharp flow of funds out of China which briefly took reserves below the $3 trillion mark earlier this year.
That authorities have so successfully stopped the rush of capital out of China and reined in corporate activities to shift money out of the country via invoicing means that the necessary adjustments in transforming the economy are able to occur without this constant source of disruption.
It has also left authorities free to rein in speculative forces within the economy.
Just last week they changed the calculation for the daily Yuan fix to add a "counter-cyclical" element to the calculation. My feeling is that the translation of that really means - we ant control of the yuan not the market.
That is consistent with the crackdown on speculative futures activity in China and a crackdown on the nation's $9 trillion-plus shadow banking sector and wealth management products.
Last month the China Banking Regulatory Commission (CBRC) upped the ante on regulations imposed in February by seeking to enforce transparency provisions in banks activities in WMP.
Part of the impact of this has been a tightening of credit which has caused overnight rates to rocket in recent days. That, in turn, has squeezed yuan shorts as US Dollar (CNY) fell to its lowest level since president Trump was elected last November - it's at 6.8098 this morning.
The question now for traders is just how far this turn in the yuan, and its resurgence will go.
Looking at my AxiTrader US dollar (CNH) weekly chart it's pretty clear that the Yuan has broken very significant uptrend support on two time frames (it similar for USD/CNY). That suggests the strength is not over yet and that a 38.2% - garden variety - retracement is in the offing. That would take USD/CNH back toward 6.6948.
USD/CNY and USD/CNH have already travelled a long way from levels around 7 earlier this year. And the recent speed of the selloff means there is som room for retracement. But it seems that Chinese authorities are serious about squeezing speculative forces out of the economy. And the charts suggest lower levels beckon.
Have a great day's trading