USD/CNH Can't Break Sub 7.1800, Local Equities Modestly Higher

USD/CNH sits slightly above session lows, last near 7.1860. We dipped to 7.1799 a short while ago. Yuan sentiment has been aided on headlines of a potentially large rescue package for the troubled local equity market. Earlier highs were close to 7.2000.

• The break lower has us sub all key EMAs, except for the 100-day (near 7.1630). The 50-day, close to 7.1900, is the nearest upside resistance point.
• A firmer equity market backdrop would help stabilize CNH sentiment. As we have noted before China equity underperformance versus the rest of the world has correlated with period of CNH weakness in recent years.
• BBG also noted that the plan would involve mobilizing funds from offshore accounts of state owned enterprises. Hence to the extent such funds have to be converted into local currency from foreign currency, it would be a CNY & CNH positive all else equal.
• Still, there have been a lot of false dawns in recent months around plans to revive China related asset sentiment. Focus remains on weakness in housing/consumer confidence/spending. Hence the market may await concrete details on any such rescue plan before turning structurally bullish on the local equity market outlook.