USDCNH has risen today despite the.......>

CHINA YUAN: USDCNH has risen today despite the PBOC setting a slightly stronger

fix. The yuan has underperformed even among a weakening in Asian FX generally

over the past two weeks, and has even underperformed EM FX more generally. 

- Option implied volatility has spiked over this period, with the vol curve

inverting as has been the case following previous sharp yuan sell-offs. While

this does not mean that vol cannot continue to rise and the yuan cannot weaken

further, the short-term outlook is improving. 

- Chinese state media organizations have talked up the yuan over recent weeks,

and the government has announced some market friendly policies that may be aimed

at preventing further yuan weakness. However, fundamentally the divergence in

monetary policies between China and the US, together with the looming threat of

a trade war, will prevent a meaningful yuan rally.