Dollar, Yen, Yuan Technical Analysis: China Faces Economic Struggles as Trade Tensions Persist

The Chinese economy remains under pressure as weak domestic demand and trade tensions with the US challenge growth prospects. The Central Economic Work Conference (CEWC) concluded without announcing aggressive stimulus measures disappointing market expectations. China has pledged to increase its fiscal deficit, boost debt issuance, and ease monetary policy. However, these measures are unlikely to provide immediate relief to counter deflationary pressures. Consequently, the yuan continues to weaken, with both the onshore USD/CNY and offshore USD/CNH pairs edging higher. Near-term sentiment remains cautious as investors assess the impact of trade uncertainties and lacklustre policy announcements.

China’s industrial production grew by 5.4% year-on-year in November 2024, slightly faster than October’s 5.3%, as shown in the chart below. This growth exceeded forecasts. Manufacturing recorded a stronger rise of 6.0%, compared to 5.4% in October. However, growth in electricity, gas, and water supply, along with mining, slowed down. For the first 11 months of 2024, industrial output expanded by 5.8%. On a monthly basis, output increased by 0.46% in November, up from 0.41% in October.

Moreover, China’s retail sales grew by 3% year-on-year in November 2024, down from the 4.8% growth recorded in October. This increase fell short of market expectations of a 4.6% increase. This represents the slowest retail activity growth since August. The weaker-than-expected retail data adds to concerns about China’s economic recovery and puts additional pressure on the yuan.

The stronger-than-expected industrial production data provides modest support to the yuan, as it suggests resilience in China’s manufacturing sector. However, the slowdown in utility and mining growth tempers optimism, highlighting uneven recovery across industries. The yuan’s overall performance remains under pressure due to broader economic concerns and tepid domestic demand, limiting the impact of positive industrial data.

Australian Dollar Struggles Amid China’s Slowdown

China’s slowdown, weaker domestic growth, and the need for increased spending in certain areas are creating challenges for Australia’s economy. These factors are supported by the Reserve Bank of Australia’s (RBA) dovish stance and put additional pressure on the Australian dollar (AUD). This highlights the growing economic headwinds facing Australia’s economy.

Australia’s Composite PMI fell to 49.9 in December, down from 50.2 recorded in November 2024, as shown in the chart below. This data highlights the weak economic data, which further weighs on the currency. Meanwhile, AUD/USD remains under pressure from a strong US dollar, which is bolstered by expectations of a 25 basis point rate cut by the Federal Reserve this week. Additionally, disappointing Chinese policy measures and their ripple effects on global demand dampen sentiment toward the Aussie, as Australia’s economy heavily depends on its trade relationship with China.

On the other hand, the Japanese Yen (JPY) weakens as hopes for a Bank of Japan (BoJ) rate hike diminish. While the Yen typically serves as a safe haven, the absence of imminent policy changes and strong US economic data are keeping it under pressure. USD/JPY has crossed above the $153.50 zone on US dollar strength and is looking for further upside.

USD/CNH Technical Analysis

USD/CNH Daily Chart – Inverted Head and Shoulders

The daily chart for USD/CNH shows that the pair has formed an inverted head-and-shoulders pattern, signalling potential upside momentum. The breakout from the inverted head-and-shoulders pattern at $7.150 pushed prices toward the black dotted trendline at $7.3080. However, the pair failed to break this level and has started consolidating its gains before further movement. A break above $7.3080 could drive the pair to $7.3660. Additionally, the 50-day SMA is approaching a crossover above the 200-day SMA, indicating that bullish momentum may continue following a short correction.

USD/CNH 4-Hour Chart – Broadening Wedge within Ascending Channel

The 4-hour chart for USD/CNH shows that the price has been trading within an ascending channel. The price momentum within this channel indicates bullish strength, suggesting that the pair is likely to continue higher. Within the channel, the pair has also formed a broadening wedge pattern, reflecting increased volatility. Currently, the RSI is positioned above the mid-level, further supporting the expectation of continued bullish momentum.

USD/JPY Technical Analysis

USD/JPY Daily Chart – Positive Momentum

The daily chart for USD/JPY shows that the pair has rebounded from the daily support levels at $140.40 and $149.20 and continues to trade higher. The 50-day SMA is crossing above the 200-day SMA, indicating the potential for continued upward momentum. Additionally, the RSI is above the mid-level, highlighting positive momentum. The immediate resistance for USD/JPY is at $156.30, and a break above this level could pave the way for further upside.

USD/JPY 4-hour Chart – Inverted Head and Shoulders

The 4-hour chart for USD/JPY shows that the rebound from the support region was bullish. This bullish momentum is highlighted by the formation of inverted head-and-shoulders preceding the rebound. This pattern indicates that positive momentum is likely to develop in the pair in the short term. The immediate resistance levels are at the $155.80 and $156.30 zones. However, the RSI is approaching overbought levels, suggesting that a short correction may occur before the upward momentum in USD/JPY resumes.

AUD/USD Technical Analysis

AUD/USD Daily Chart – Bearish Pressure

The daily chart for AUD/USD shows that the pair has been trading within a wide range between $0.63 and $0.69 over the past two years. The pair is currently approaching the lower boundary of this range, displaying strong bearish pressure. Although the 50-day SMA has crossed below the 200-day SMA, the range-bound market suggests that AUD/USD may rebound from these levels. The price is likely to find support within the $0.63–$0.62 zone. On the other hand, a break below $0.62 may trigger a long-term decline in the pair.

AUD/USD 4-Hour Chart – Descending Channel

The 4-hour chart for AUD/USD shows that the pair is trading within a descending channel amid bearish pressure. Reduced price movement suggests that a bottom may be forming as the pair approaches the lower boundary of this range. This could trigger a strong rebound from the support levels at $0.63 and $0.62.