Chinese Risk Assets Rise

Risk assets in China seeing a bid as the session progresses, USD/CNH breaks through the psychological 6.50 barrier while equity markets also gain.

• Several markets in the region are closed (most notably Japan and South Korea) with thin volumes elsewhere, which is putting emphasis on Chinese assets amid increased liquidity conditions after over CNY 450bln of PBOC injections in the past 10 days.
• China's manufacturing and services PMIs came in slightly weaker than expectations for December, but the readings were still in expansionary territory and a weaker greenback heading into year end is helping the yuan shrug off the data.
• USD/CNH last at 6.4936, after dropping as low as 6.4886. We last broke through 6.50 in December 9, but quickly backed away from the level before challenging again on December 17.
• The 6.50 handle remains in focus as a psychological barrier, but on a historical basis 6.44 appears to be more significant and could represent a line in the sand for the PBOC. The pair already appears oversold due to the precipitous drop in the US dollar and is well below longer term moving averages.
• From a technical perspective the pair is heading towards 2016 and 2017 lows and 78.6% Fibonacci retracement, which were made at 6.4437 and 6.4417, respectively. Below are the May 2018 high at 6.4323 and also the February and early May 2018 highs at 6.3835 and 6.3774.