The peak will come within a week, but we are optimistic about the Yuan.
After intense pressure from society and labor activists, the Chinese government shifted from its zero-Covid policy. It eased pandemic restrictions—that led china to a massive spike in Covid-19 cases in the last week. Health officials have told state media that the peak would increase the infection rate, lasting for one or two months. We expect the peak to come within a week.
While we are waiting to see the effect of what happened last week in December numbers, which will be out in January, November activity data confirmed another stumble for the economy. Looking at the published economic data can give us more details. Service Purchasing Managers Index decreased, Retail Sales fell 5.9% annually, Service production eased by 1.9%, and Manufacturing production slowed by 2.2% in November. However, notwithstanding these data, GDP is expected to rise by 3% in 2022, and with changing covid-restriction policies, it is expected to grow even more in 2023 by almost 5%. Even if, for the first few months, the severe wave of patients increases the pressures on manufacturing and service activities.
From a technical point of view, Yuan has gained back some of its losses over the past six months. After breaching the key support at 7.00, we are now looking at 6.90 as the next target. Under 6.90, 6.84, and 6.78 are the following targets in the following weeks, but to fall under the 6.78 level, we need to see some weakness in the US dollar. Technically steady trading under the 7.00 level will hold the bears in the chart, which is confirmed by the OBV trend line.
