The Nasdaq Golden Dragon Index is back to its highest levels since July 2018 and price action in the currency market may favor more gains in coming months.
The U.S. dollar-Chinese Yuan pair seems to have formed a double-top at 7.18. That was a peak last September and again in late May. (Remember USDCNY moves opposite the yuan, so lower prices mean the yuan is gaining.)
That may suggest the greenback is set for downside against the Chinese currency, which in turn could make investors more willing to own Chinese stocks.
This is important because it matches the bigger trend of indexes rebalancing toward the Asian giant. It also makes sense because China’s economy is recovering from coronavirus. But even more important, Beijing is determined to evolve from being a manufacturing center to more of a financial hub. Most times in history, that means a country’s currency gains value. (Think of the U.S. dollar in the 1990s.)
All these forces, combined with the in USDCNY , suggest a longer-term rotation is taking place. There aren’t any obvious setups right now in Chinese stocks, but the shift toward names like Alibaba and JD .com could just be getting started. This could also favor semiconductors , solar energy and the Nasdaq in general.
Stay tuned for opportunities as they arise. There could be many!