- The USD / CNH carved a doji candle on Tuesday, a sign of indecision in the market.
- The PBOC is expected to keep rates unchanged on Wednesday.
- A surprise rate cut could weigh on the offshore yuan (CNH).
The USD / CNH has no clear directional bias on Wednesday, as traders await the very important rate decision from the People’s Bank of China (PBOC).
The pair carved a doji candle on Tuesday, which occurs when the currency pair sees bidirectional activity and ends a specific period on a flat note. The doji candle is widely regarded as a sign of indecision in the market.
Stronger selling pressure could emerge if the spot prints a close below the hollow of the doji candle of 7.1087 on Wednesday, confirming the lower reversal signaled by the long upper wick attached to the red candle on Monday.
Alternatively, a close above the highest 7.1266 of the doji candle would mean that the period of indecision ended with the victory of the bulls and could give a new move higher towards 7.16487 (19 March high).
The direction of the closing could be influenced by the PBOC rate decision scheduled at 01:30 GMT. Thirty-four respondents or 73.9% of Reuters respondents did not expect any change in the prime year rate (LPR) or the tenor five-year rate in its monthly setting Wednesday.
The offshore Yuan or CNH will likely be under pressure if the central bank offers a rate cut. The probabilities are however low, as the PBOC would be likely to preserve the rate cuts to counter a deeper slowdown in activity, if any, in the future. The United States has recently accused China of intentionally spreading the virus and has threatened retaliation in the form of tariffs.
In April, China lowered the prime lending rate by 20 basis points to 3.85% from 4.05% previously, and the five-year LPR by 10 basis points to 4.65% from 4.75%.