The US Dollar (USD) may see a slight dip against the Chinese Yuan (CNY), but it’s unlikely to drop below 7.1630. Over time, the USD is expected to move between 7.1550 and 7.1920. Recently, the USD traded between 7.1660 and 7.1834, finishing almost unchanged at 7.1743, showing a small decline of 0.03%. While there is some indication of further downward movement, a fall below 7.1630 is not anticipated.

Short to Medium-term Outlook

Looking ahead, earlier forecasts suggested the USD might rise above 7.1900. Although it briefly reached 7.1881, the currency hasn’t gained much strength. With strong support at 7.1630 still intact, we expect it to stay within the range of 7.1550 to 7.1920. It’s important for readers to do their own research before making any financial decisions, as market risks and uncertainties exist. Individual traders are responsible for their own potential losses. This information is not intended as investment advice. Considering the tightly controlled nature of this currency pair, we view the current situation as offering the chance to profit from stability rather than making big directional bets. The forecast suggests limited fluctuations, indicating that volatility is risky. Although the Federal Reserve’s firm stance has widened the favorable yield gap for the USD over the CNY—holding the Fed Funds Rate above 5.25% while China’s one-year loan prime rate is at 3.45%—the expected rise in the dollar hasn’t occurred, which is not coincidental. The People’s Bank of China plays a major role in this situation. They consistently set the daily yuan reference rate stronger than expected, showing they do not tolerate excessive weakness. This strategy is supported by solid data; in May, China reported a 7.6% year-on-year increase in exports, surpassing forecasts and growing its trade surplus. This influx of foreign currency acts as a natural support for the yuan, suggesting that the dollar’s rise is limited. Historically, times like this, where policy limits volatility, have been profitable for those investing in stability.

Strategy for Derivative Traders

For derivative traders, the best strategy is to sell options premium by creating positions that take advantage of time decay while the pair stays within the predicted range. An iron condor, with short strikes placed just outside the 7.1550 to 7.1920 range, is a fitting choice. For example, sell a put at around 7.1550 and a call near 7.1920, while buying further out-of-the-money options for safety. This approach directly profits from the expectation of a stable market. The idea is to allow time to work in your favor, as the value of these options decreases each day that the USD/CNY pair does not make a significant move. The slight downward trend seems to be testing the lower limit, but the combination of policy and recent trade data suggests that breaking the strong support at 7.1630 is unlikely in the coming weeks. Traders should monitor the People’s Bank of China’s (PBoC) daily rate settings as a key indicator. Any change from the recent tendency to set a strong rate could indicate that our range-bound outlook may need to be reassessed. Create your live VT Markets account and start trading now.

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