Chinese Returning to Work, Yuan Strengthens Slightly

Alan Penny

11 February 2020

3 min read

temple in China

  • Chinese workers start to work again
  • USD/CNY moving with virus
  • Foxconn moves to making masks

Monday saw Chinese workers slowly starting to trickle back to work after the quarantine conditions lifted in several cities in China. Not everybody is yet back at work and therefore it is somewhat of a “lumpy return” to production at some of the largest factories.

the fact that the Chinese government is starting to put people back to work suggests that the return might be quicker than anticipated

Meanwhile, the Chinese government is distributing masks to help protect workers as the virus continues to spread. That being said, the fact that the Chinese government is starting to put people back to work suggests that the return might be quicker than anticipated.

Several manufacturers in China have switched over to producing masks, including Foxconn, one of the biggest producers of Apple products in the world. Instead of making iPhones, they are making masks at the moment, trying to get the general public and workers covered in order to help the supply chain get back to normal.

The Chinese yuan has started to strengthen slightly as a result. However, one of the biggest issues that could come to fruition is an actual acceleration of virus contagion as the population comes into more contact with each other.

If things are not handled properly, and with so many people there, it’s hard to contain the virus, so it’s difficult to imagine the infections not spreading further. While there are officially 40,000 cases of coronavirus in China, the numbers are suspected to be much higher, and this shows just how desperate the Chinese are to get their factories back up because the situation hasn’t gotten much better.

The trade war and the coronavirus could very well expose the futility of the Chinese economy that many economists have suspected due to massive amounts of debt.

Technical analysis for USD/CNY

USD/CNY 5-year chart

The US dollar has pulled back slightly against the Chinese yuan, as it had challenged the 7.0000 level again. This is an area that does have a significant amount of psychological importance to it, and therefore it’s not a huge surprise to see some type of reaction. Nonetheless, the 50-day EMA sits just below and could offer a bit of support, as well as the most recent swing low at the 6.85 level.

Looking at this chart, if the market was to turn around to break above the 7.03 level, then the US dollar will continue to strengthen against the Chinese yuan, in a sign that China is still flat on its back.

Although there has been a slight pullback, the reality is that the US dollar has been very strong for some time. Not only does the coronavirus cause issues for China, but also global demand concerns continue, so the Chinese yuan is probably going to have a tough ride ahead.

Ultimately, the US dollar remains strong against most currencies, but as you can see by simply looking at the charts, there hasn’t been a direct path higher, as it has been chopping quite significantly. If the coronavirus continues to expand, that should only drive this pair higher.

Written By
Alan Penny

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