SocGen: Go Long USD/CNH

Societe Generale recommend going long USD/CNH at CNH6.8281 with a target of CNH6.9500 and a stop at CNH6.7700, with a time horizon of 1-2 months and negative carry of 22bp/month.

• They note that "putting fundamental drivers aside for USD/G10 or the renminbi, the risks are skewed to a tactical bounce higher in USD/CNH, given the possibility of a EUR correction and the CNH technical set up. Short-term technicals indicate very oversold conditions in USD/CNH on metrics such as RSI and MAE. Typically, this degree of oversold price action has coincided with a tactical bounce. From a medium-term standpoint, CNH6.83 is approximately the 38.2% Fibonacci retracement level from the 2018 low to the 2019/2020 double top high, which could act as a support point as it did in July 2019 and January 2020. The fate of short-term price action in CNH could be largely dictated by what happens to the EUR. The EUR price action appears toppy amid historically elevated net long positioning according CFTC data. A reduction in EUR net longs by 25%, 50%, or 75% could see USD/CNH bounce between 0.6% to 1.2% based on historical relationships between EUR, positioning and CNH. In the most recent example of a large net EUR long position reduction (2018) the CNH fell 7%, albeit over nearly a one-year timeframe."