Earlier today, the National Bureau of Statistics of China (NBSC) posted the latest reading of China's yearly inflation rate. Consumer prices rose but missed the preliminary forecasts, which exacerbated the tumble of the USDCNY.
As can be seen on the weekly chart above, the USDCNY continues to find itself in a solid downtrend. This is illustrated by the ADX indicator, which has been threading above the 25-point benchmark since late September 2020.
The ADX reached a peak around the time the price action fell to the upper boundary of the last Accumulation range at 6.4700. Afterwards, the price went on to establish a false bullish rebound.
The latter materialised in a Dead Cat Bounce pattern, which typically represents a temporary break in the development of a broader downtrend. The pattern failed to strengthen above the 20-day MA (in red), which is why the USDCNY was then able to break down within the Accumulation range.
That is why the strength of the underlying Markdown - an essential component of the Wyckoff Cycle - appears to be waning down, as underpinned by the ADX indicator after February 2021.
This represents an early signal that the USDCNY is once again getting ready to consolidate in a new range. Before this can happen, however, the price action looks poised to fall to the Accumulation range's lower boundary at 6.2650 once again.
Annual inflation in China rose to 1.3 per cent in May from April's 0.9 per cent. Still, consumer prices did not surge to 1.6 per cent as was anticipated by the preliminary forecasts, which means that global inflation pressures are not yet decisive.
Demand is likely to weaken even more in July as energy prices are due for a sizable correction.