USD/CNY rare chart pattern points to more downside

The USD/CNY price drifted upwards slightly on Wednesday after the latest Chinese economic numbers. It rose to a high of 6.8808, which was a few points above this week’s low of 6.8375. The price is still lower than this month’s high of 6.9757. Chinese stocks rebounded after the data, with the Shanghai index rising by 70 basis points.

China’s economic recovery

The Chinese economy is seeing relatively slow economic growth as it reopens from the Covid-zero strategy. Data by the National Bureau of Statistics showed that the country’s unemployment rate rose slightly from 5.5% to 5.6% in February. The youth unemployment rate remains stubbornly high.

Industrial production, which is an important part of the economy, expanded from 1.3% to 2.4% in February, lower than the median estimate of 2.6%. Retail sales of 3.55% were also lower than what analysts were expecting.

As a result, the country’s central bank announced measures to pump liquidity injections to the country. This liquidity will happen when rolling over maturing medium-term policy loans. It is the fourth time in which the country has rolled over the liquidity. At the same time, it left the interest rate on the 4821 billion yuan unchanged at 2.75%.

The USD/CNY is also reacting to the happenings in the United States. On Tuesday, data by the Bureau of Labor Statistics showed that the country’s inflation remained uncomfortably high in February. The headline consumer price index (CPI) dropped from 6.4% in January to 6.0% in February.

The closely watched core inflation rose from 0.4% to 0.5% on a month-on-month basis. Therefore, there is a likelihood that the Fed will hike interest rates by at least 0.25% in the coming meeting. Before the data, analysts were expecting the Fed will leave rates unchanged.

USD/CNY technical analysis

USD/CNY chart by TradingView

The USD to CNY price formed a double-top pattern at 6.9737 on February 27 and March 8. In price action analysis, this double-top pattern is usually a bearish sign. The pair has now moved slightly above the neckline of this pattern at 6.8616. 

It remains below the 25-day and 50-day exponential moving averages while the MACD and the Relative Strength Index (RSI) are pointing downwards. Therefore, because of the double-top pattern, the pair will likely resume the bearish trend as sellers target the second support of the Woodie pivot at 6.84.