FOREX TRADING IDEA USD/CNH

Strategy
Buy 6.4920 for 6.7190 with a stop below 6.4240.

Technical View
Price reached a high on 5 May 2020 at 7.1969 and since that day has been on a decline. Price reached a low of 6.4007 on 16 February 2021. The 20EMA has also turned around and is moving higher, hinting of a change in price direction. The 20EMA had turned nicely with price in the past, catching the high and the low in this 9-month bearish trend. MACD had given bullish divergence warnings as well, hinting of a possible price low in the making. This turn is likely to bring price higher to the Fibonacci 38% correction of the decline. This could be a correction or a new bullish trend. But whichever it is, it is likely to move to at least the Fibonacci 38% correction point which lies at 6.7196.

Fundamental View
A US stimulus relief package of US$1.9 trillion proposed by US President Joe Biden was passed by Congress and sign into legalization by US President Joe Biden. This package will help the country and its citizens to recover from coronavirus pandemic, which has led to business failure and many of its citizens out of jobs. The US is outspending its peers to fuel economic growth. Expectations are high this pandemic relief package could get the U.S. as well as the global economy out of a pandemic induced recession. There are already talks that another package in the near future.

This massive amount of stimulus is also expected to lead to a rise in inflation, with bond yields already rising. US Treasury yields had risen to a 14-month high at 1.75% last week. Expectation of a recovery in the US economy is also likely lead to inflation which could drive up Treasury yields. An increase in Treasury yields is likely to support the US dollar as the US currency provides a higher return compared to many of its peers. The rise in yields is likely to continue even without another stimulus package, as the economic recovery is likely to lead to inflation rising.

The number of coronavirus cases continues to decline in the US and sentiment has also improved as a result of a COVID-19 vaccine. A successful vaccine rollout is likely to lead to a re-opening of the US economy, which in turn could lead to more business activity that had been curtailed due to COVID-19 lockdown or restriction. Many analysts are already predicting a big growth rate for the US economy and the global economy in 2021.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.