The well-oiled currency: yuan trading into 2019

The well-oiled currency: yuan trading into 2019

The clamor that has surrounded China’s recent government policy of restricting overseas business even further and making it harder for many firms to do business in the People’s Republic is on the mind of many traders worldwide.

Taking a deeper look though at what’s currently affecting the price of the yuan means looking beyond these issues to consider the bigger picture of the Chinese economy and its dependence on imported commodities. The dollar against the offshore yuan is a notoriously difficult symbol to trade, but it doesn’t need to be this way if you can grasp its fundamentals well.

Understanding the relationship between commodities and the Chinese economy especially now can give forex traders the knowledge they need to make money trading USD-CNH.

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TRADE USD-CNH

Trade wars, commodities and the yuan

China’s enormous economic growth which has been sustained for decades has come with heavy reliance on large quantities of imported commodities, foremost among them crude oil.

Traders had noted strong gains for offshore renminbi until oil’s significant recovery around the middle of 2018. This also coincided with President Trump’s escalation of rhetoric on trade wars and threats of new and larger tariffs exchanged between the USA and China.

Despite these and dominant negative sentiment around the yuan in the middle of 2018, the dollar hasn’t been able to break the strong resistance level of 7 yuan.

Big movements on D1 USD-CNH
The dollar posted strong gains against the yuan amid the summer's tariff and trade war concerns. Could it be time for a reversal?
Source: Exness MT4

The People’s Bank can certainly take some credit for this, but let’s not forget that the Chinese government has also been very clever in preventing fluctuations in the prices of commodities hitting the value of the currency much in themselves.

Yuan trading and the dragon economy

Controlling the entire commodity market in China, the government in Beijing has created and expanded what it calls a ‘commodities city’ in Yiwu. This city is completely under the auspices of the government. Heralded as 'the International Trade City' by the Chinese government, Yiwu's full of every possible market from simple export of clothes to financial services and, of course, commodity exchanges.

Key for forex traders though is Yiwu Trading City's commodity boom. Fuelled by the latest drop in prices of crude oil, many forex traders are starting to see the yuan as ready for a bounce.

China's economic growth

The 24th China International Yiwu Commodities Fair has just taken place in October, driving traders’ interest in the details behind the economic data that come out every week from China.

Tumbling prices of oil over recent weeks combined with a government set on growth and control show that annual GDP growth rates around 6.5% could be sustained. Many traders are ready for the yuan to appreciate gradually but significantly against the dollar even before the end of 2018.

Time to sell USD-CNH?

The fundamentals of both the American and Chinese economies remain very strong even after the latest slump in shares around the world. That said, the yuan has made gains against the dollar amid the equity selloffs, supported by cheaper oil and a higher base rate than in the USA, although volatility has been high.

Oil's lost out since last week, helping the yuan
Gains for the yuan are seen as correlated with losses for crude oil due to China's dependence on the commodity. Source: Exness MT4

This week in particular is a big one for the yuan, with a whole range of data releases coming up including annual industrial production on Thursday. A breakout for the yuan is quite possible if the data come in even slightly better than expected.

Open an account and download Exness MT4 to get ready for the yuan’s big moves!

TRADE THE YUAN

Your 4-step guide to opening a trading account

Step 1: Getting registered

It's very easy to open an account with Exness. Click here to open the sign-up page in a new tab. If you want to get everything done in the next 10 minutes, be sure to have a credit card, ID, and, proof of address by your side. You can choose to open a demo account without these things. Either way, everything you need to know is here in this two-minute video. Pause the movie as you go through the first three steps.

Tip: Account type depends on the amount you wish to deposit. Leverage is effectively an interest-free loan that the broker offers. It allows you to make a large investment from a small deposit. If you are looking for high profit with high risk, a higher leverage might be right for you. If you prefer slow-burning safety with lower results, then keep your leverage low. You can never lose more than you have, but higher leverage means faster results... both good and bad.

Step 2: Prove who you are

Exness takes security very seriously, and they check every client signing up. Just like opening a bank account, you'll need to prove who you are before getting access to the global markets. Watch this one-minute video to see how.

Tip: While you're waiting for your real account to be approved, open up a demo account and start getting to know the trading platform.

 

Step 3: how to get access to the market

Trades are made using the award-winning MT4 trading platform. Inside the box of the demo or real account you'll see a gear cog. Click the gear cog to make a deposit. Use the passwords provided in the email. Click the gear cog again and select SIGN IN TO MT4 WEBTERMINAL then follow this one-minute video. You're about to make your first virtual trade on the real markets.

 

Step 4: making a trade

As a default, the top currency pair on the list will have an open chart. Right click on the chart and select the “close” option.

As a professional trader, selecting the right pair requires some research. For a first-time test, any pair will be sufficient. Drag a pair from the list of currencies on the left side of the trading terminal. The old saying goes, “what goes up, must come down.” Obviously, this principle goes the other way too. Your mission is to find a moment when the price direction is going to swing or reverse. If you feel the price is about to go up (bullish), then BUY, if it looks like it’s been trading high and the price has started a downward (bearish) trend, then SELL.

There are many ways to open your trade. You can select from the buy and sell options on the top left of the chart. Preferably, double-click the currency pair on the list. Right click on the chart when you’re ready to make your first trade. Time to set the volume depending on how confident you are in the direction you are forecasting. This is the perfect time to set your stop loss and take profit. Click the arrow to the right of the stop loss and take profit prices.

Note how the blue and dark red lines in the popup graph sit above and below the buy(ask) and sell(bid) price. In the example, we traded long (buy) and got a message confirming the order was successful. If you get an error, your volume was too high for your balance, or your stop loss/take profit was too close to the spread. Remember, every order starts as a negative because of the spread. Be patient. Your take profit will activate when the time is right, and your stop loss is protecting you. To close an order, you have three options. Click the X on the right or right-click the order. If you double click the order, you can close or modify the order.

Congratulations! You now know how to make a trade. Forex trading can be an exciting way to spend your free time, and you'll actually learn some real-world skills that will serve you well throughout your lifetime. Be patient, learn, and who knows, you might one day be one of the lucky few full-time traders. How will you spend your day?

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This article is a marketing communication and does not constitute investment advice or research. Its content represents the general views of our experts and does not consider individual readers’ personal circumstances, investment experience, or current financial situation. This article is not prepared in accordance with legal requirements promoting independent investment research, and Exness is not subject to any prohibition on dealing before the release of the article. Readers should consider the possibility that they may incur losses. Therefore, Exness is not liable for any losses incurred due to the use of its articles. Please note that past performance of an asset is not a reliable indicator of future results.