The People's Bank of China has decided to cut interest rates once again.

The yuan has appreciated to 7.23 yuan per dollar, despite the central bank lowering the one-year Medium-Term Lending Facility (MLF) rate. This policy is a crucial measure to help support the domestic economy to recover. However, rapid and significant interest rate cuts may cause the yuan to depreciate, leading to more expensive imports and a rapid increase in inflation.

On July 25, the People's Bank of China (PBoC) reduced the short-term lending rate (MLF) to 2.3% from 2.5%, marking the first rate cut in almost a year. This move was necessary to support a sluggish economy, as indicated by lower-than-expected GDP figures in the second quarter and mixed economic data in June. Additionally, the central bank issued over 200 billion yuan in loans and injected 235.1 billion yuan through government bond repurchase programs to support government bond prices.

Furthermore, the rate cut also benefits households, as the five-year loan interest rate, which serves as the reference rate for mortgage loans, was reduced to 3.85%. This reduction will positively impact long-term housing debt for Chinese citizens. Bloomberg News stated that this interest rate cut might indicate a trend towards more rate cuts by the Chinese central bank. Economists believe the central bank is hesitant to cut lending rates further due to the risk of capital outflows from the country's financial markets.

China's trade surplus increased to $99.05 billion in June, up from $69.8 billion in the same period last year, driven by a sharp increase in exports, while imports fell due to weak domestic demand.

China's exports grew by 8.6% year-on-year to $307.9 billion, accelerating from a 7.6% increase in the previous month. This growth was mainly fueled by higher orders for exported goods, particularly furniture and plastic products, while exports of automobiles and automotive parts continued to rise. Most exports increased to the United States, Hong Kong, and Taiwan, while exports to Japan decreased.

China's imports fell by 2.3% year-on-year, dropping to $208.81 billion, below market expectations of 2.8% growth due to continued weak domestic demand. The majority of imports in the first half of the year were automatic data processing equipment, which increased by over 53.7%, while imports of vegetable oils and rare earth minerals continued to decline.

Techical analysis data (5H)

Resistance: 7.2538, 7.2806, 7.302

Source: Investing.com

Buy/Long 1: If the price touches support in the price range of 7.1842 - 7.2056 but cannot break the support at 7.2056, you may set a TP at approximately 7.2806 and SL at around 7.1574 or according to your acceptable risk.

Buy/Long 2: If the price breaks the resistance in the price range of 7.2538 - 7.2806, you may set a TP at approximately 7.302 and SL at around 7.1842 or according to your acceptable risk.

Sell/Short 1: If the price touches resistance in the price range of 7.2538 - 7.2806 but cannot break the resistance at 7.2538, you may set a TP at approximately 7.1842 and SL at around 7.302 or according to your acceptable risk.

Sell/Short 2: If the price breaks the support in the price range of 7.1842 - 7.2056, you may set a TP at approximately 7.1574 and SL at around 7.2806 or according to your acceptable risk.

Pivot point July 25, 2024 09:06 PM. GMT+7