Firms With Stronger Yen Levels, But Cross Asset Signals Not Encouraging

USD/CNH mostly tracked sideways post the Asia close on Tuesday. We couldn't breach 7.2850 on the downside, while moves above 7.2900 drew selling interest. We track just under this level in early Wednesday dealings, after a 0.10% CNH gain for Tuesday's session. This outperformed most of the majors, with the BBDXY USD index rising 0.16%. USD/CNY spot finished up at 7.2748, slightly above end Monday levels.

• For USD/CNH we still remain above all the key EMAs, the 20-day is nearby at 7.2845.
• CNH likely saw some benefit from the continued pullback in USD/JPY levels through Tuesday trade. Levels correlations between USD/CNH and USD/JPY have generally been in the 50-60% range over the past 6-12 months.
• Still, cross asset signals for the yuan remain a headwind. The CSI 300 slumped over 2% yesterday. The index is still above earlier July lows, but trends since the end of the Third Plenum and post Monday's surprise rate cuts haven't been encouraging. The China to global equity ratio is trending back towards earlier 2024 lows.
• Local CGB yields also tracked lower, with the 2yr making a fresh cycle low, last near 1.54%. The 10yr yield was also down but remains above earlier July lows. A test of this region may prompt a response from the authorities given PBoC concern over lower long term yield levels diverging from fundamentals.
• The local data calendar remains empty until Saturday's June industrial profits print.