USD/CNY Vs USD/HKD: Levels, Ranges, Targets

USD/CNY trade history as a result of the 2005 internationalization of the Yuan began July 2005 at 8.0351 then dropped over 1200 pips 3 years later to 6.7922 in July 2008. From July 2008 to May 2010, USD/CNY traded in dormant stages inside a 795 pip range from 6.8895 to 6.8090. USD/CNY’s 789 pip downtrend resumed from June 2010 to June 2014 from 6.8305 to a 9 year bottom at 6.0406. An uptrend began from 6.0406 to June 2017 highs at 6.9622. USD/CNY trades at current roughly 6.2874.

If the past is prologue as in the EUR/USD 9 year bottom at 103.00’s and GBP/USD’s 9 year bottom at 1.1900’s then USD/CNY currently embarks on a multi year uptrend and possibly a multi year correction from 8.0351.

USD/CNY since 2005 and in 144 traded months, 99 down months were seen as opposed to 45 up months.

USD/HKD from July 2005 at 7.7730 bolted 568 pips to 7.8298 in July 2007. USD/HKD from current 7.8489 trades at 29 year highs not seen since January 1989. As a result of the Plaza and Louvre Accords in the 1980’s, USD/HKD traded briefly from 1984 to 1989 in the 8.0000’s. Overall, USD/HKD’s larger price history began from 5.71 in January 1960 and trades at the top of a 58 year uptrend.

USD/HKD is far from richter scale overbought since 1999 and beyond but current price is unsustainably overbought and desperately needs a correction. Noise levels on certain days achieve maximum statistical capacity seen historically only in current EUR/DKK. USD/HKD risks not just a correction but an explosive downside move. Long USD/HKD is literally impossible in favor of a short only strategy.

As USD/HKD trades miles above its overbought 5, 10 and 14 year averages at 7.7673, 7.7676 and 7.7727, the first target lower is located at 7.8208 followed by 7.7982, 7.7923 and 7.7889. USD/HKD should and will trade to its current comfort zone at 7.7923. Perspective to overbought is USD/HKD must correct at least 600 pips and longer term, no reason why a challenge exists to the 14 year average at 7.7727.

USD/CNY from 6.2874 must trade 997 pips higher to easily 6.3268, 6.3779 and 6.3871. USD/CNY trades miles below its 5, 10 and 14 averages at 6.4062, 6.5127 and 6.8172. USD/CNY is severely oversold particularly from its current longer term break points above at 6.4840 and 6.5213. The 10 year average at 6.5127 is well protected. Despite CNY / Yuan internationalization since 2005, the 14 year averages was obtained from the ECB.

Historically, USD/CNY was fixed and maintained a 1960 price at 2.4618 until it traded at 2.2450 at the January 1972 free float. Since 1972, CNY dropped to 1.84 lows then embarked on an uptrend until its was again fixed at 8.2700 from January 1997 to July 2005 until it again free floated at 8.2165. The 58 year mid point is located at roughly 5.3391 to 5.3659.

AS USD/HKD traveled higher, USD/CNY traded lower and now both pairs trade far outside respectable averages and range boundaries and both must correct as current price levels are unsustainable.

 

Brian Twomey