Fundamental Forecast for CNH: Bearish
- Disappointing Chinese fundamentals could hold the Yuan at weak levels in the near term.
- US-China trade war has resumed; more tic-for-tac attacks could be revealed and elevate volatility.
- The USD/CNH[1] eyes on the reversed trend after a long-term resistance level was broken.
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This week, the USD/CNH broke above a long-term downtrend held since the mid of 2017, indicating a reversal in a longer time frame; the Yuan also lost against the EUR[3], JPY[4], GBP[5] and CHF[6]. Looking forward, the USD/CNH will likely continue the bullish trend (bearish for the Yuan); volatility in the pair is expected to elevate as the US and China have resumed tariff battles despite of rounds of negotiations.
Recent Chinese gauges signalled concerns in the economy. The Fixed Assets Investment fell to a record low level since it was ever quoted in 1999; Private Investment in Fixed Assets dropped back to the lowest level in 2018. These leading investment indicators reflect that private companies are less willing to expand their business and the amount of public infrastructure projects dropped as well; both could lead to a falling employment rate.
Also, consumer purchases continue to show a lack of momentum: Retail Sales dropped to the lowest level in May since June 2003. The weak Chinese investment and consumption have contributed to the weakness in the Yuan. Significant improvements are less likely to be seen soon as it would take time and efforts. This makes
