Markets sure about Fed rate hike
In this report we consider studying the personal composite instrument (PCI) Chinese yuan/Japanese yen. It rises when the yuan is getting stronger against the US dollar while yen weakens. PCI reflects the dynamics of gas between pace of GDP growth in China and Japan.
Let us assume that the China’s economy will develop faster than the Japan’s one. In such a case the personal composite instrument CNHJPY may advance. The USDCNH chart shows the descending trend while USDJPY advances. The China’s government premier Li Keqiang said on Wednesday that his country is no willing trade wars with the US and announced the possible meeting of the China’s president Xi Jinping and the US president Donald Trump this April. Li Keqiang also said that China is not planning to make yuan weaker to support the exports. The China’s state reserves are big enough to support stability of yuan. In its turn Bank of Japan said repeatedly that is interested in weaker yen. Its next meeting will take place on March 16, 2017. No changes in monetary policy are expected. Currently the short-term rate of BoJ is negative (-0.1%). At the same time, the bank effects the quantitative easing (i.e. yen emission) of 80trn yen ($695bn) each year. Such diverse aims of the monetary policy in China and Japan as well as the gap in rates may push CNHJPY up. The interest rate in China is +4.35%. The Japan’s GDP rose 1,2% in 2016? While the China’s GDP surged 6.8%.
On the daily chart CNHJPY: D1 surpassed the resistance of the mid-term downtrend. The correction ended having reached the Fibonacci retracement at 61.8%, and there is a chance the uptrend movement continues. The further increase of PCI prices is possible in case of stronger yuan and weaker yen.
- The Parabolic indicator gives bullish signals.
- The Bollinger bands have narrowed a lot which means low volatility. They are tilted upwards.
- The RSI is above 50 but has not yet reached the overbought zone. It has formed positive divergence.
- The MACD gives bullish signals.
The bullish momentum may develop in case CNHJPY surpasses the last fractal high and the upper Bollinger band at 16.73. This level may serve the point of entry. The initial stop-loss shall be placed below the two last fractal lows, the Bollinger band and the parabolic signal at 16.3. Having opened the pending order we shall move the stop to the next fractal low following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 16.3 without reaching the order at 16.73, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Summary of technical analysis
| Position | Buy |
| Buy stop | above 16.73 |
| Stop loss | below 16.3 |