FX Week Ahead - Top 5 Events: US-China Trade War Talks, July China Manufacturing PMI & USD/CNH Rate Forecast
US-China Trade War Talking Points:
- The July China Manufacturing PMI is due on Wednesday, July 31 at 01:00 GMT.
- Spot USD/CNH is in the spotlight next week with the resumption of US China trade talks in addition to the latest China Manufacturing PMI data out of China which will likely show another slight contraction in economic activity.
- USD/CNH implied volatility could rise if US-China trade tensions flare up again.
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07/31 WEDNESDAY | 01:00 GMT | CNY China Manufacturing PMI (JUL)
Forex risk appetite will likely turn to US-China trade war developments early next week with top US officials scheduled to travel to China in hopes of reviving trade talks between the two countries. US Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer are set to discuss trade policy with China’s Vice Premier Liu He on Tuesday and will be the first face-to-face meeting between trade negotiators since President Trump and President Xi met at the G20 Summit nearly a month ago.
Aside from US-China trade war discussions between Mnuchin, Lighthizer and He next week, China Manufacturing PMI and Services PMI data could shed light on the Chinese economy. China’s manufacturing sector has been running in contraction territory with a reading under 50.0 for the last 6 out of 7 months as tariffs and slowing global GDP growth cripple the industry. The July 2019 China manufacturing PMI is expected to cross the wires on Wednesday at 1:00 GMT with a reading of 49.6 according to Bloomberg and up from the 49.3 reading in June.
USD/CNH TECHNICAL ANALYSIS: DAILY RATE CHART (AUGUST 2018 TO JULY 2019) (CHART 1)
With the inherit risk that hardline issues will likely go unresolved, the possibility of US President Trump threatening additional tariffs on Chinese exports cannot be ignored. As mentioned earlier this week, rhetoric between the two countries remains skeptically-optimistic at best and potential of US-China trade war escalation threatens spot USD/CNH and the closely-watched 7.0000 USD to CNH exchange rate. However, USD/CNH implied volatility could plummet further, likely to the benefit of the Chinese Yuan, if substantive developments are revealed from the US-China trade talks next week.
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist and Rich Dvorak, Junior Currency Analyst
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