USD/CNH Manages Shallow Look Below 7.20 Before Pulling Back Above

MNI (London) - USD/CNH had a shallow look below CNH7.20 (the first such instance since 23 June), with a move away from worst levels for the broader USD (in BBDXY terms) helping the pair to find a base.

• Firmer than expected Chinese credit data for the month of June (foretold by comments run in state-owned media outlets), coupled with continued headwinds for the broader USD, have limited any rebounds, leaving the rate around CNH7.2050 last.
• The upper end of the well-defined uptrend channel that was in play between February and June has been breached, leaving bears looking to the Jun 22 low (CNH7.1699) as the initial area of technical support. Beyond there lies the 50-day EMA (CNH7.1270).
• A quick reminder that long USD/Yuan plays remain a preferred position for many, owing to carry and worry surrounding the Chinese economy. This brings a more than negligible positioning element into play during moves lower.
• The signalling of further Chinese stimulus has probably put peak China worry behind us, as noted a few weeks ago, although the risk on that front seems to be for under, not over, delivery. Many have pointed to the need for more meaningful fiscal stimulus at a household level, as opposed to focus on the traditional levers of Chinese policy stimulus. The July Politburo remains a likely staging ground for related announcements.