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USD/CNH Testing 6.7100

CNH

USD/CNH has recovered strongly today, up over 0.40% from yesterday's close to sit near 6.7100. This has been in line with broader USD strength and unwinds the recent run of CNH outperformance.

  • Besides broader USD strength, there hasn't been a single catalyst that has turned USD/CNH higher. We have now had a number of bounces off the 6.65-6.66 region, so this looks to be a near term support zone.
  • The Caixin PMI disappointed and China/HK shares have struggled today after a strong finish to May.
  • Little signs that China is moving away from the covid-zero strategy is also weighed at the margin. A recent BBG report has highlighted that the Chinese authorities are continuing to invest in vast, seemingly permanent networks of testing infrastructure.
  • Despite the recent sharp moves, implied volatility measures are still below recent highs. 1 month sits at 7%, versus above 8% in early May. So, the market may be expected a broad range trade in the near term. 1 month risk reversals sit close to recent lows as well (0.695).
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