Chinese authorities have introduced a whole raft of measures designed to boost the Chinese economy. However, judging by the performance of the Chinese stock market, it's clear that, so far, all these measures have been a dismal failure. At least for the time being, and on the surface. While the MSCI China almost retested its 2022 lows at the start of the year, there's reason to believe in authoritative circles that this time it's the right one (recovery). One way of assessing this is to look at the behavior of the currency, the renminbi.

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Source : Bloomberg

The chart above shows the evolution of the USDCNY over the last ten years. Interestingly, the upward sequences have almost the same amplitude, around 15%. What's more, the last two rallies have very similar durations: 74 weeks for the first and 77 weeks for the second. This confluence of a price and time resistance zone increases the probability of a significant top. The presence of bearish divergences on countercyclical indicators such as the RSI in the lower panel also illustrates the exhaustion of the current uptrend. To speak of a trend reversal, the 40 support level would have to be broken.

What does this mean?

The renminbi's renewed appeal could be the prelude to an influx of capital into the Chinese stock market, which by extension could finally emerge from its slump. While all this is merely a hypothesis for the moment, we'll be keeping a close eye on the currency's behavior over the coming weeks to see if our scenario is confirmed.