Tighter Funding Lends Some Support

MNI (London) - Plenty of focus on CNH TN points which see a meaningful move to marginal positive territory, reflecting tighter funding conditions (higher cost of shorting CNH).

• There hasn’t been much in the way of news flow on that side, although some have suggested that policymaker guidance/action may be at play given the combination of the recent move higher in USD/yuan, the run of outflows from mainland Chinese equities (six straight days of net outflows via the HK-China Stock Connect links, totalling ~CNY26.5bn, including the largest round of net daily sales seen since Oct ’22) and continued worry surrounding Chinese economic performance.
• Elsewhere, some desks think participants may have waited until Friday to deliver maximum impact re: the funding squeeze, given the potential for dealer book squaring into the weekend.
• USD/CNH sits around CNH7.20, after pulling back from Wednesday’s high (CNH7.2322). This week’s break of resistance at the 50-day EMA and then 7.2000 provides stronger short-term bullish technical conditions. A resumption of gains would open the way towards CNH7.2500 which protects the 61.8% retracement of the Sep 8-Dec 29 downleg (CNH7.2610). Zooming out, moving average studies continue to indicate a medium-term downtrend. A clear break of the 20-day EMA (CNH7.1805) would highlight a possible bearish reversal.