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CNH Again Testing 50-Day MA, Caixin PMI Out Today

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USD/CNH tracked familiar ranges post the Asia close. Offers were found once again above 6.7100, but we couldn't break back below 6.6900, despite the DXY slump in the NY session. We track 6.6975 currently.

  • Despite CNH's limited beta with respect to USD softness overnight, USD/CNH is back below the 50-day MA, which currently sits at 6.6989. The pair hasn't been able to sustain breaks sub this level in recent weeks though.
  • Risk reversals are also suggesting further downside in the pair, see the chart below. Earlier in the year the bounce higher in the risk reversal arguably led the move up in USD/CNH spot. Of course, it remains to be seen if history repeats.
  • Yield spreads, in an outright sense remain in favor of the USD, but have fallen sharply in recent weeks. The 2yr US-CH spread got close to +120bps in mid June but now sits back at +70bps.
  • The China equity outperformance theme continues to gain traction. A Bloomberg survey of 19 fund managers suggests China and Hong Kong stocks will continue to outperform the rest of the world. 70% of those surveyed stated they will maintain or increase their holdings of China/HK stocks.
  • On the data front, the Caixin PMI is out today. The market expects the print to come in at 50.2, versus 48.1 previously.

Fig 1: USD/CNH & Risk Reversals

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USD/CNH tracked familiar ranges post the Asia close. Offers were found once again above 6.7100, but we couldn't break back below 6.6900, despite the DXY slump in the NY session. We track 6.6975 currently.

  • Despite CNH's limited beta with respect to USD softness overnight, USD/CNH is back below the 50-day MA, which currently sits at 6.6989. The pair hasn't been able to sustain breaks sub this level in recent weeks though.
  • Risk reversals are also suggesting further downside in the pair, see the chart below. Earlier in the year the bounce higher in the risk reversal arguably led the move up in USD/CNH spot. Of course, it remains to be seen if history repeats.
  • Yield spreads, in an outright sense remain in favor of the USD, but have fallen sharply in recent weeks. The 2yr US-CH spread got close to +120bps in mid June but now sits back at +70bps.
  • The China equity outperformance theme continues to gain traction. A Bloomberg survey of 19 fund managers suggests China and Hong Kong stocks will continue to outperform the rest of the world. 70% of those surveyed stated they will maintain or increase their holdings of China/HK stocks.
  • On the data front, the Caixin PMI is out today. The market expects the print to come in at 50.2, versus 48.1 previously.

Fig 1: USD/CNH & Risk Reversals

Keep reading...Show less