USD/CNY extends downside towards 38.2% Fib target on trade-deal finally signed and delivered

• USD/CNY bleeds out to mark fresh lows below the 2018 trendline.
• US/Sino trade deal is signed and delivered, but the prospects of a phase two deal any time soon are slim.

USD/CNY is currently trading at 6.8825 around the lows for the Asian session so far, consolidating above the 6.8658 post-phase-one deal signing fresh bearish cycle lows, (extending below the daily 2018-2019 support line).

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USD/CNY has continued to bleed out in what appears to be the beginnings of a fresh bearish trend on the back of the trade accord between the US and China. However, suspicions between the two nations on the issue of implementation and on hegemony remain in play and the trade tensions have come with a steep cost to the Chinese economy which could require continued intervention from the Chinese authorities, ultimately weighing on the yuan. After all, the phase-one deal leaves much of the new high-tariff infrastructure in place with a 25% levy by the US on $250bn of Chinese goods and there is no clear road map ahead.

Focus to shift to the Fed

On positive developments in trade agreements, the yuan can continue to strengthen, but whether USD/CNY can move all the way back to levels prior to when the trade dispute started, somewhere around 6.2500, will largely depend on not only how well the two nations get along, (while Trump is instead focused on his re-election), but whether the Federal Reserve will move towards a more dovish stance. 

We are not seeing promising numbers out of the US economy, and businesses will need to make hay while the sun shines with the new trade deal in place, something that was known to businesses back in mid-December when the deal was first announced –  it is time to start seeing some of the positive outcomes or the market will forfeit the US dollar on a dovish switch-up at the Fed. 

USD/CNY levels

Following a break of the 200-Day moving average and the 2018 trendline support, the pair is en-route to a 38.2% retracement of the 2018 rally from when trade disputes started to take effect on the yuan. At this juncture, the June lows could well reinforce the Fib retracement target around 6.8270. The 6.70s come next.