USD/CNH Coils After Testing 7.20

USD/CNH topped out at 7.2000 today, after a negative round of trade for Chinese equities, relatively sizable outflows via the HK-China Stock Connect links and a modest USD bid allowed the rate to tick higher through early London hours.

• The U.S. PPI print then added some weight in early NY hours, before stabilising off session lows of CNH7.1854, last CNH7.1885.
• Chinese credit and money supply data, which was generally in line to a touch softer than expected, had little impact. Policymakers have previously expressed a need to promote greater efficiency of existing loans.
• Previously covered technical parameters remain intact.
• Fundamental focus over the past few days has centred on increased deflationary worry and disappointment surrounding the lack of firm commitment/details surrounding fresh stimulus in the post-CEWC readout.
• Note that Citi expect “CNH volatility to be muted into year-end as fix levels are carefully manicured, funding is tight, and given regular media reports - citing unnamed sources - of state banks selling USD to limit yuan weakness.”