Reluctant To Firm Further Vs. USD, Fixing & China Macro Worry Eyed

USD/CNH has been reluctant to trade lower once again, despite the broader USD trading on the defensive through early London hours.

• The subsequent stabilisation and move away from worst levels in the BBDXY resulted in fresh session highs above 7.1650 in recent trade.
• Macro worry surrounding China (a heavy session for the Chinese property sector in equity trade, notably slower Y/Y growth in Chinese industrial profits in November and weekend stories re: the shadow banking sector) and expectations for continued liquidity injections from the PBoC re: facilitating bond issuance and preventing liquidity squeezes, were the most obvious yuan-bearish news factors.
• Elsewhere, the mid-point USD/CNY fixing ended its recent pull lower, adding to the yuan-negative drivers.
• Technically, trend conditions for USD/CNH remain bearish, with the pair consolidating a little above recent lows. A reminder that the November shunt lower resulted in a break of a trendline support drawn from the Feb 2 low.
• The recent consolidation is seen as a pause in the downtrend and also appears to be a bear flag formation - which represents a continuation pattern. A break of both the 200-DMA and month-to-date lows would expose CNH7.1161, the Jul 27 low and next key support. Conversely, resistance to watch is at CNH7.2340, the 20-day EMA.