Chinese Yuan extended its advance into the opening day of 2026, climbing to its strongest level against Dollar since May 2023. Part of the rally appears to reflect a knee-jerk reaction to the basket adjustment. China’s foreign exchange trade platform said the CFETS basket will be updated in 2026 as part of its routine annual reweighting based on trade flows, lowering the relative influence of both Dollar and Euro.
Specifically, Dollar weighting will fall to 18.307% from 18.903%. Euro weighting will edge down to 17.862% from 17.902%. While both remain the two largest components, their diluted weight reduces their influence on the daily fixing process, giving the People’s Bank of China slightly more flexibility in managing Yuan stability against a broader set of trading partners.
Another notable shift was regional. Korean Won overtook Japanese Yen to become the third-heaviest currency in the basket, reflecting the growing importance of China–South Korea trade, as diplomatic relations with Japan also turned sour. Weightings for Hong Kong Dollar and Thai Baht were also increased.
Still, price action suggests Yuan strength is confined to Dollar alone. EUR/CNH is showing renewed vulnerability, hinting that the move could be spreading beyond a mechanical basket adjustment.
Technically, EUR/CNH’s break below 8.2040 support signals that the rebound from 8.1660 has likely completed at 8.3004. That opens the door for a deeper fall toward 8.1660, with a firm break there extending the broader downtrend from 8.4638. In this case, next target is 38.2% retracement of 7.4886 to 8.4638 at 8.0913.
USD/CNH, meanwhile, is pressing key support near the 2024 low at 6.979. The downtrend from 7.4287 remains intact, though a critical Fibonacci level lies just ahead. That level sits at the 100% projection of 7.4287 to 7.1608 from 7.2224 at 6.9545. Strong support is expected there to trigger at least a corrective rebound. Firm break above 7.0140 resistance will signal short-term bottoming and opening a move back toward 55 D EMA (now at 7.0692).
However, sustained breaks below 6.9545 in USD/CNH and 8.1660 in EUR/CNH would suggest markets are pricing in something more structural than basket mechanics—potentially a shift toward a Yuan appreciation bias in 2026. In that scenario, USD/CNH could extend toward 138.2% projection at 6.8522.
