The yuan has slightly strengthened after a long period of weakness. 

Although the yuan has regained some strength compared to the dollar, there is still a possibility of it weakening again. It is necessary to keep an eye on the weakening of the dollar as well. The DXY index has started to decline after receiving news of another interest rate hike by the Fed and it is expected that there will be 2-3 more rate hikes this year.

From an investor's perspective, the concerns about China are related to its slowing economy and the risk of a liquidity crisis that may occur. This can be seen from the Consumer Price Index (CPI) announced recently, which was reported at 0% compared to the previous year and -0.2% compared to the previous month. Additionally, the Core CPI also showed a decrease, with a reported figure of 0.4% compared to the same month last year.

Furthermore, factory gate prices in China have experienced the fastest decline in seven and a half years in June. This is due to the expectation that the economy would perform better than this, while the CPI has continued to decline. The ongoing impact of the pandemic's weak recovery has affected the situation.

HSBC analysts have highlighted that the most important factor to monitor currently is whether there will be stimulus measures that are not monetary in nature, how quickly they will be implemented, and whether they meet market expectations in terms of size and impact on growth.

According to surveys, the issuance of new yuan-denominated loans in China may increase further in June, following a nearly twofold increase in May. The People's Bank of China (PBOC) continues its accommodative policies to support the recovery of the fragile economy. Additionally, it is expected that non-performing loans in yuan will increase by 11.2% in June compared to the same period last year, a decrease from the 11.4% recorded in May.

The accelerated issuance of government bonds may help increase China's Total Social Financing (TSF), which is a measure of credit and overall liquidity. It is projected that TSF will rise to 3.00 trillion yuan from 1.56 trillion yuan in May. However, the return on investment remains a significant factor for investors to consider when it comes to the yuan. Comparing the yield differentials of 2-year government bonds between the United States and China, the widest in 16 years, the United States offers a much higher return. Moreover, overall demand remains lower than pre-COVID levels, and the increased interest coincides with the reopening of China, which has been a long time coming.

Technical analysis data (5H)

Resistance: 7.2243, 7.2411, 7.2499

Support: 7.1987, 7.1899, 7.1731

Source: Investing.com