USD/CNH Through Overnight Highs, Targeting Test Above 6.8000

USD/CNH is making fresh gains above 6.7950 this morning, before easing a touch. This is through overnight highs. A number of spikes into the high 6.7800/low 6.7900 region have presented strong resilient points going back to late-May, so be mindful of stops if the pair breaks higher. Beyond these levels is the May 16th high of just above 6.8200. On the downside, dips sub 6.7400 have been supported for a few weeks now.

• The impeding Pelosi visit to Taiwan will be the near term focus for markets, particularly around China's response. The US has outlined a number of possible military responses that China may take in response to the trip. This, along with risks of a further deterioration in already fragile US-China relations, is fuelling upside USD/CNH pressure.
• The 1 month risk reversal is back above 1.00 (last 1.1675) but remains sub previous YTD highs. Likewise in the vol space. So, there is scope for risk sentiment to deteriorate further in the near term from this standpoint.
• Weaker macro conditions underpinned by the softer manufacturing PMI prints haven't helped either. China relative equity outperformance is unwinding rapidly, which is also feeding into weakness in CNH on a cross basis.
• This is most evident in CNH/JPY which is sub its 100 day MA, last printing at 19.330.