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MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
EMERGING MARKETS
- Following on from an observation made yesterday of a golden cross pattern on USD/CNH, we note that the potential for a CNH correction holds outsized risks for greater weakness in closely-correlated EM crosses and commodity currencies across the board.
- The recent slide in Chinese economic data has brought forward the spectre of a growth slowdown in EM's largest economy, which when coupled with contracting Chinese liquidity, equity outflows and a pipeline of potential RRR cuts, makes for a number of pervasive risks to EM FX in the near to medium-term.
- Closely correlated currencies, such as ZAR, BRL, CLP and a number of Asian countries, remain vulnerable to a correction in CNH – given their reliance on Chinese growth outperformance for commodity export demand as a core driver of their terms of trade. Beyond metals exporters, CNH depreciation holds additional risks for the oil complex with rising import prices curbing demand from one of the world's largest importers.
- While USD/CNH is yet to confirm the golden cross and upside break (currently hovering around 8.50), acute CNH weakness remains a factor worth considering in the coming months as the Fed approaches key meetings in Jackson Hole and the September & November FOMCs – where our policy team anticipates taper lift-off may commence.
- As noted yesterday, technical indicators on USD/CNH are turning increasingly bullish as downside momentum in the cross stalls out in 2021. Since the start of the year, price action has been broadly contained in the 6.40-6.60 range after CNH mounted an impressive +11.64% gain vs the USD from late April to its peak at the start of June 2021.
- The cross is now facing a bullish golden cross pattern with the 50dma looking to summit the 200dma in the coming sessions. RSI oscillator momentum remains bullish after finding support at the 50 line in July & August, potentially signalling scope for more upside. Tentative signs of a bullish inverted H&S Pattern are also appearing on the daily chart – but are less clear cut as the right shoulder structure remains weak.
- The 6.60 level (fraction above April highs at 5.5876) represents a key bullish break point for the cross, with a consolidated move above this level creating scope for a deeper pullback towards 6.70 and the 50% Fib at 6.7745.
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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