The USDCNH/USDCNY move was extraordinary
Updated
As the Chinese economy was slowing even before the lockdowns, the strict lockdowns put a lot more pressure on the CNH/CNY. This created a huge divergence in the policies of the Fed and PBoC, as one was hiking and the other was cutting. For quite some time the USD was going up against most currencies, except the CNY... until one day the market fully reversed and rallied much higher.
By looking back to the USDCNH price action over the last decade, we can see that the two times we got such huge rallies, the market initially pulled back, and then went higher. Now when we compare the duration of those rallies, their magnitude and how overbought the market got by using different metrics, they all look fairly similar as a whole. For example the first one from 2015 was longer and slightly larger than the current one, but the initial leg was brutal. The second one from 2018 was the largest and quickest, however the market wasn't that overbought and the move made more 'sense'. Therefore this move has the potential to be just like the previous two.
In the short term I could easily see USDCNH trade back to 6.53-6.58, but my long term target is above the 7.2 double top. The same way the double top around 7 broke and the market went to 7.2, I expect the market to go above the 7.2 double top. No idea where could it top, but it is possible that we get a prolonged bull for USDCNH.
By looking back to the USDCNH price action over the last decade, we can see that the two times we got such huge rallies, the market initially pulled back, and then went higher. Now when we compare the duration of those rallies, their magnitude and how overbought the market got by using different metrics, they all look fairly similar as a whole. For example the first one from 2015 was longer and slightly larger than the current one, but the initial leg was brutal. The second one from 2018 was the largest and quickest, however the market wasn't that overbought and the move made more 'sense'. Therefore this move has the potential to be just like the previous two.
In the short term I could easily see USDCNH trade back to 6.53-6.58, but my long term target is above the 7.2 double top. The same way the double top around 7 broke and the market went to 7.2, I expect the market to go above the 7.2 double top. No idea where could it top, but it is possible that we get a prolonged bull for USDCNH.
Trade closed: target reached
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