USDCNH has risen from its early low to...>

CHINA YUAN: USDCNH has risen from its early low to trade at 6.8000 currently but

remains much lower than prior to the PBOC's Friday announcement that it will

resume its counter-cyclical adjustment when setting the daily price. 

- The pair broke cleanly below its 21-dma and neckline support and looks set for

a further drop. The pivot area at 6.7350 and the 55-dma at 6.7170 are the next

levels of support. With the implied volatility curve still inverted, fear

surrounding the currency remains elevated which has tended in the past to give

way to yuan gains. 

- As we wrote last week in 'China Money Week: China At Policy Crossroads In

Trade Spat', measures to support the currency are likely to be positive for

US-China trade relations, which could result in a virtuous cycle of currency

strength and further improvements in trade relations.