The trade war between China and the U.S. is escalating, and the Chinese yuan is starting to feel the pressure. After the U.S. raised tariffs to a total of 54%, China responded with a 34% increase of its own. Now, Trump has threatened an additional 50% tariff hike if China doesn’t withdraw its retaliation. 

It appears unlikely that either side will back down at this stage, and the trade war is set to intensify further. 

In addition to retaliating, China is also preparing to defend its economy. According to several news reports, Beijing is planning to frontload stimulus measures aimed at boosting domestic consumption, subsidizing exporters to cushion the blow from reduced U.S. trade, and supporting stock market stability. The People’s Bank of China will likely play a central role in this effort, using tools such as rate adjustments and daily yuan fixings. 

(USDCNH) 

The latest yuan fixing came in above 7.20, the highest level since 2023. With this looser fixing and ongoing trade war pressure, USDCNH is pushing higher. The ascending triangle formation which typically breaks to the upside is also supporting bearish bets on the yuan. 

If China proceeds with a small and controlled devaluation, as many expect, a breakout from this triangle pattern is likely. 

The potential target for the breakout could align with one of the parallel lines of the lower boundary of the formation, which are currently around 7.61 and 7.75, and gradually rising. With time, a move toward 7.80 is well within reach by the end of the year.