The USD/CNH pair is drawing significant attention as it edges closer to a crucial resistance level of 7.31142—the highest level seen since July. The persistent strength of the US dollar, combined with external and domestic pressures on emerging market currencies, continues to drive the pair higher. Here’s a closer look at the fundamentals and technical outlook.

Fundamentals Driving USD/CNH

The US dollar remains bid across global FX markets, supported by political drama in Europe, weakness in many emerging markets, and homegrown troubles in BRICS nations. This week’s spotlight is on US economic data, particularly today’s JOLTS job openings data.

1. US Data & Fed Prospects:
   • Fed Governor Christopher Waller’s dovish comments last night hinted at his inclination to support a rate cut during the December 18 meeting. Markets are pricing in an 18bp probability of a 25bp cut, leaving room for a potential dollar decline if the JOLTS data shows unexpected labor market slack.
   • A drop in job openings relative to employment would signal cooling labor market conditions and could push short-term US rates lower, putting pressure on the greenback.
2. Pressure on Emerging Market Currencies:
   • BRICS members’ currencies face compounded difficulties, with local factors exacerbating external pressures.
   • Political instability, such as the looming crisis in France, and the US’s tariff threats targeting countries supporting alternative reserve currencies, add layers of uncertainty.
3. US-China Relations:
   • Renewed tariff threats from President-elect Trump over the weekend reinforce concerns over US-China trade dynamics, supporting further upside for USD/CNH.
   • The Chinese yuan is underperforming in part due to weak domestic demand, capital outflows, and limited intervention by the PBOC.

Technical Analysis of USD/CNH

The USD/CNH pair is trading within a rising wedge formation, recently pushing towards the 7.31142 resistance level, a key threshold in the onshore range. The technical landscape suggests that a break of this level could pave the way for further upside momentum.

Key Levels to Watch:

1. Resistance: 7.31142
   This is the immediate upside barrier. A breakout above this level would likely attract fresh buying interest, targeting higher highs in the 7.3500–7.4000 zone.
2. Support: 7.2280 and 7.1500
   Immediate downside support lies around 7.2280, with the middle bound of the bull flag near 7.1500 providing additional support.

Elliott Wave Perspective:

• The daily chart reflects an Elliott Wave corrective ABC pattern following the 5-wave rally in early 2023. The recent upswing suggests the completion of the “C” leg, with a potential breakout signalling the start of a fresh bullish wave.

Outlook for USD/CNH

What Could Change the Narrative?

1. Stronger-than-expected US JOLTS Data:
   A soft JOLTS reading could weaken the dollar, pushing USD/CNH lower towards support levels.
2. Shift in US-China Relations:
   A de-escalation of tariff threats or evidence of significant PBOC intervention in FX markets could alleviate pressure on the yuan.
3. Improved Global Sentiment:
   Reduced political uncertainty in Europe and stabilisation of BRICS currencies could shift market dynamics away from dollar strength.

Conclusion

While USD/CNH remains at the cusp of breaking a critical level, the broader environment of a strong dollar and global uncertainty provides tailwinds for the pair. Traders should keep a close eye on today’s JOLTS report and geopolitical developments for potential catalysts. A decisive break above 7.31142 could open the doors for new highs, while a rejection at this level might see the pair consolidating or pulling back in the short term.