Following the Chinese stocks sell off, the PBOC cut the mandatory bank reserves of some Chinese banks to boost lending to smaller companies in the country. The decline was expected and the central bank would add $107.65 billion. more liquidity. The reduction in mandatory bank reserves will affect the five largest state-owned banks, as well as 12 commercial banks.
The central bank’s actions do not go unnoticed by investors, and over the past few days, there is an increased withdrawal of capital from the country. It seems that following Trump’s incitement and deepening trade warfare problems will undermine the credibility of the Chinese economy. And without mentioning $107.65bn. (more than 700 billion Chinese Yuan) are a big sum even for the Chinese economy, and when so much free money flows into the economy, this inevitably leads to a depreciation of the national currency.
If we look at USD/CNY, it is clear that the pair has broken the main bearish trend as well as 200SMA. Sequential counts 5th on top, meaning the upward pulse is still at an intermediate stage. Given the strong foundations, I expect a 38.2% Fibonacci correction not to affect and the price to go to 6.6000 or 50%. Fibonacci on the bearish trend.
Chart: Used with permission of Bloomberg Finance L.P.
Trader Petar Milanov