The Yuan (CNY) is the basic unit of the Renminbi which represents the official currency of the People’s Republic of China.
The ongoing trade war between China and United States is affecting the economy for both country and the recent tension caused by U.S. Tariffs could be the trigger of more weakness in Yuan.
China’s currency had appreciated 30% against the U.S. dollar fro 20 consecutive year ( from 1994 until 2014 ). However in 2015, the People’s Bank of China (PBOC) surprised the markets with three consecutive devaluations of the yuan CNY to boost exports in support of the economy.
Following PBOC intervention, the US dollar gained 15% over the Yuan but failed to break $7 barrier in the recent 2 years which can have significant effect over market prices.
The technical picture for USDCNY will help us to identify the next path for the Yuan. As the pair has ended the downtrend cycle from 1994 then ideally it’s looking for a recovery to correct that decline. Therefore, it’s looking at least for a 3 waves move against the previous trend which is represented on the next chart by a proposed corrective Elliott Wave structure “Zigzag”.
The initial rally from 2014 was in an impulsive 5 waves structure followed by 3 waves pullback then the pair started a new cycle higher taking 2016 peak but still failing around $6.9 area. The break higher created an incomplete bullish sequence suggesting an 5 waves move higher to a minimum target at $7.16 and ideally it can extend toward the 100% Fibonacci extension $7.4 coming from 2018 low.
Consequently, USDCNY is expected to remain supported above 2018 low at $6.2 and the next step is to take $6.9 peak which will be the key level for short term cycles to allow trades to buy pullbacks in 3 or 7 swings against March 2019 low $6.6.
USDCNY (YUAN) Weekly Chart 5.16.2019