USD/CNH TALKING POINTS
- Chinese FX reserves suffer at the hands of global and local factors.
- Interest rate differentials are hurting the Yuan.
- USD/CNH primed for upside breakout.
CHINESE YUAN FUNDAMENTAL BACKDROP
The Chinese Yuan (offshore) depreciated against the U.S. dollar this morning after the June release missed estimates (see calendar below). The $3.071T figure marks the lowest point since March 2020. Unsurprisingly, the fundamental backdrop does correlate with the decline as the divergence between the Peoples Bank of China (PBoC) holding rates constant and Federal Reserve’s aggressive outlook continues to grow.
Coupled with recessionary fears and higher yields in the Unites States, investors are seeking out safe-haven assets in-line with the markets ‘risk-off’ sentiment. Rising COVID-19 cases in June has contributed to supply disruptions in mainland China resulting in mobility limitations leaving the Yuan exposed to further downside.
CHINA ECONOMIC CALENDAR
Source: DailyFX economic calendar
TECHNICAL ANALYSIS
USD/CNH DAILY CHART
Chart prepared by Warren Venketas, IG
The immediate market reaction was relatively muted but incrementally trudged higher towards the 6.7164 support zone. This key area of inflection is definitely under threat should the fundamental backdrop remain thus bringing the symmetrical triangle (black) breakout into consideration.
Resistance levels:
- Triangle resistance
- 6.7164
Support levels:
- 20-day EMA (purple)
- 50-day EMA (blue)
- Triangle support
Contact and follow Warren on Twitter: @WVenketas
