USD/CNH Move Lower Extends In Asia, Before Stabilising

Firmer than expected retail sales data, liquidity injection provisions from the PBoC, feedthrough from yesterday’s property stimulus rumours and modest inflows into mainland China equity markets via the HK-China Stock Connect links provided extra layers of support for the yuan after the yesterday’s U.S. CPI-induced move lower in USD/CNH.

• The monthly run of Chinese economic activity data also revealed continued headwinds for property investment and home sales, although the yuan positives listed above overpowered these negatives, which in themselves reaffirmed the need for further property-centric support.
• Also note that local press outlets have run comments from analysts flagging the likelihood of further deposit rate cuts at commercial banks.
• Technically, Tuesday’s move lower saw USD/CNH clear support at 7.2596, the Sep 15 low. The break represents an important short-term bearish development via a range breakout. The move lower extended in Asia-Pac hours, with a brief showing below 7.2392, the Sep 1 low and the next key support..
• The rate traded as low as 7.2384 before recovering to the 7.26 zone. Broader USD swings have been at the fore since, with the rate last showing just below 7.25. A meaningful break below session lows would represent a stronger reversal and open 7.2037 - trendline support drawn from the Feb 2 low.
• Conversely bulls need to retake 7.3108, the Nov 13 high, to reassert themselves once again.