Can Renminbi investment be timed with technical analysis at all?

Technical analysis may not work with Renminbi investment

Following my article ‘Debutante Chinese Renminbi has a special date with 2015‘, I got my colleague interested to look at a long term investment in the  Chinese currency. Being the technical analysis kind of person she is, this question came up: “so what does the chart say?”

 

Looking for high probability chart patterns in a restricted, not fully convertible Renminbi

The Renminbi is not fully convertible with other currencies yet. Inflows and out of mainland China remain restricted. It is not even legal tender in Hong Kong and Macau. What this looks like on a long term monthly price chart is a movement that looks directed instead of the zigzag pattern that we see in freely traded currencies.

Chart of Renminbi CNY 2004 - 2013

This monthly price chat is devoid of the zigzag movement visible in other currencies

 

The reason to apply technical analysis after all is to look for clues in price action that can predict future price movement. Technical retracements are good levels to enter trades while significant recognisable patterns lead to high probability outcomes. A price chart such as the Renminbi monthly chart we can see above is almost devoid of retracement, chart patterns. Zigzag price movements that hint at retracements and recognisable chart patterns are more evident in this daily chart of the currency below.

Renminbi CNY daily chart

The daily chart of Renminbi has more features, looks more like freely traded currency

Note: Using USDCNH charts may be more appropriate. After all outside of China we are dealing with the offshore Renminbi CNH. In addition CNH and CNY price are not perfectly correlated and may diverge. On the other hand, the CNY chart is sufficient for my discussion here.

 

Long term Renminbi investment driven by policy, fundamentals

Putting both charts together, perhaps a market technician will arrive at this outcome:

  1. Long term movement (lack of price fluctuation) indicates Renminbi is controlled, directed
  2. Technical analysis merely tells it is in a trend but little other technical indication
  3. Its movement may be better explained by monetary policy or the currency’s fundamentals
  4. Short term direction looks more like charts of freely traded currencies i.e. has trade-able chart patterns
  5. Technical analysis will apply better in short term

 

See also

Invest or trade Offshore Renminbi (RMB) with CNH

 

Update: Renminbi vs Dollar Index (CNY vs DXY) 11 June 2013

Renminbi CNY vs Dollar Index DXY Chart 1997 - 2013Some thoughts:

  1. Renminbi does not affect the Dollar basket
  2. Renminbi does not care for the Dollar basket

No correlation.

 

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Soh Tiong Hum is a forex trader, investor and co-founder of TerraSeeds Market Technician Pte Ltd. He is father of 2, business owner, webmaster, writer and speaker, seo amateur and webmaster. Come find Tiong Hum on Google+

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