Pelosi, Taiwan and the USDCNY
Winston Churchill once said: “To jaw-jaw is always better than to war-war.” Whether Nancy Pelosi is aware of, or would choose to heed, Churchill’s words can’t be said, but her visit to Taiwan this week has certainly caused much ‘jaw-jaw’ in western and Chinese media.
How has this affected markets? Initially we saw the US dollar surge at the start of the week as it reiterated its position as the present safe haven of choice as markets worried about the brewing argument between the US and China. This also had an impact on the major indices, which took a breather from their bullish run of last week. However, by Wednesday’s session we’d seen the bulls return in confidence.
US dollar/Chinese yuan (USDCNY)
If we take a look at the technical picture of the US dollar vs the Chinese yuan, we see that this week’s antagonism has, so far, been nothing more than a storm in a teacup in trading terms.
On the chart above we can see the 2020 price struggling to stay above what was deemed to be the important 7.00 level. The price formed a strong downtrend as the US dollar weakened considerably. However, that trend ended in April 2022 when the surge in US dollar strength also filtered into the USDCNY. For the last three months we have seen the price moving up as it pivots around the 6.70 level.
Perhaps the greatest affect could be that Pelosi’s visit creates the impetus for a breakout for the USDCNY from its current consolidation pattern? This is one to monitor closely.