The US Dollar (USD) is expected to trade between 7.1530 and 7.1730 against the Chinese Yuan (CNH). Previously, it was thought the USD would range from 7.1440 to 7.1630, but it has already reached a high of 7.1706. Long-term analysis shows that the downward trend of the USD is losing steam. If it breaks above 7.1730, a decline to 7.1295 is less likely. Recently, the USD peaked at 7.1706 and then stabilized at 7.1686, reflecting a small gain of 0.19%.

Investment Risks and Considerations

Be aware that forward-looking statements come with risks and uncertainties. The information provided does not serve as a recommendation for trading assets. Investing involves risks, including the potential loss of funds. Always conduct thorough research before making any financial decisions. The details shared may not be error-free or precise, and investing in open markets carries various risks. Given the upward shift in the trading range, we think that derivative strategies should now focus on dollar strength against the yuan. The market has broken above the previous upper range, signaling that bearish bets on the dollar are becoming riskier. This suggests a need to move away from strategies aimed at a decline to 7.1295. This view is backed by recent economic data from China, which shows a mixed recovery. While industrial output grew a strong 6.7% year-over-year in April 2024, retail sales only increased by 2.3%, falling short of expectations and indicating weak consumer demand. This economic softness puts pressure on the yuan, making a stronger dollar more likely.

Federal Reserve and Policy Divergence

Meanwhile, the US Federal Reserve’s commitment to keeping interest rates high boosts the dollar’s attractiveness. Even though US inflation for April slightly decreased to 3.4%, the significant interest rate gap between the US and China continues to drive capital into the dollar. We believe this policy divergence is crucial for supporting a higher USD/CNH exchange rate. We recommend traders consider buying USD call options with strike prices just above the 7.1730 resistance level. This strategy allows participation in a potential upward breakout while limiting maximum risk. It aligns with the fading downward momentum discussed in the analysis. Historically, a strong break of a key technical level in this pair often leads to increased volatility. Therefore, we might also explore strategies that benefit from larger price movements, regardless of direction but with a bullish tilt. The goal is to prepare for the end of the recent consolidation and the beginning of a new upward trend for the dollar. Create your live VT Markets account and start trading now.

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