USD/CNH Holds Below CNH7.20

USD/CNH is consolidating recent gains, with the pair respecting the narrow range seen in Asia-Pac hours, last dealing little changed between CNH7.1850-1900.

• Post-MLF announcement most looked to the PBoC’s focus on liquidity in recent communique, with the lack of movement in the rate applied to the MLF (most expected a cut) seemingly upping the odds of a pre-LNY RRR cut.
• Plenty of preferential lending schemes in China provide qualifying companies with attractive lending avenues (from an interest rate perspective).
• This, coupled with the drivers of the recent run of deflation in China, probably resulted in the PBoC leaving the MLF rate at unchanged levels.
• Elsewhere, a CNY-positive lean from the PBoC remains evident in the daily fixing.
• Chinese benchmark yields & money market rates finished off session highs, although DR007 and 7-day reverse repo fixed higher.
• Northbound HK-China Stock Connect flows were essentially neutral for the yuan on Monday.
• A light downtick for benchmark global equity indices will have provided some support for the USD, with the same holding true for the latest headlines re: ongoing instability of transit through the Red Sea
• In terms of technicals in USD/CNH, key short-term resistance to watch is the Dec 13 high and bull trigger (CNH7.20) A break would strengthen a bullish theme and signal scope for a climb towards the 50.0% retracement of the Sep 8-Dec 29 bear leg (CNH7.2278). For now, recent gains in the cross are considered corrective. A reversal lower would signal the end of the latest corrective phase and open the Dec 29 low and key support (CNH7.0875). Initial support lies at the Jan 5 low (CNH7.1409).