China is expected to begin easing its monetary policy.

According to economic reports, the Chinese economy has shown signs of weakness, which were not as favorable as predicted in April and May. This could be attributed to the slow recovery from the COVID-19 pandemic and ongoing economic tensions with the United States. The global trade and investment slowdown has also been a major factor affecting the economic recovery.

In the past week, high-level meetings were held between the United States and China, with Antony Blinken, the U.S. Secretary of State, participating. Both sides made efforts to alleviate the tensions that have arisen. However, investors anticipate that this meeting will only provide a slight reduction in the existing tension.

Furthermore, the People's Bank of China (PBOC) is considering reducing interest rates on loans for high-end customers. This comes after adjustments were made to both short-term and medium-term interest rates to prevent the economy from deteriorating further. The significant interest rate differential has led to a greater outflow of funds from investors.

A survey of 32 analysts revealed that all respondents expected the PBOC to reduce the loan prime rate (LPR) for one-year and five-year loans for high-end customers. These measures are expected to support the weakened real estate sector and prevent a more severe economic slowdown.

The Chinese yuan has been consistently weakening due to the Chinese government's confirmation of policy measures to stimulate economic growth. Amid uncertainties about the recovery from the major outbreak, several major banks have revised down their GDP growth forecasts for China in 2023. Industrial production and retail sales figures in May also fell short of expectations.

Julian Evans-Pritchard, Director of China Economics at Capital Economics, stated, "This rate cut will lower the cost of new borrowing, as well as the interest payments on existing loans, and should help to support economic activity to some extent. But we think it is unlikely to prompt a significant acceleration in credit growth given subdued loan demand."

The US Dollar Index (DXY) has seen a slight adjustment after the Federal Reserve (Fed) temporarily paused its interest rate hikes. However, there are expectations of at least two more interest rate hikes by the Fed this year, with a potential increase in July, likely by only 0.25% according to investor projections.

Technical analysis data (5H)

Resistance: 7.1783, 7.1834, 7.1891

Support: 7.1675, 7.1618, 7.1567

Source: Investing.com