USDCNH remains close to recent highs,......>

CHINA FX: USDCNH remains close to recent highs, currently trading at 6.4522

which coincides with its 200DMA. The escalation of the China-US trade conflict

has failed to significantly impact the pair. However, risks appear tilted to the

downside for the yuan from both a short- and medium-term perspective. 

- Last week USDCNH took out a major resistance zone between the May 30 high of

6.4340 and the September 2017 low of 6.4430. Should the 200DMA give way, which

looks increasingly likely, this would confirm the beginning of a yuan bear

market. 

- While the currency pair has not been particularly responsive to the

increasingly intense trade spat between China and the US, on balance it is

likely to prove yuan negative given the country's higher degree of trade

openness and reliance on price-competitive exports. There is also a small but

growing risk that Beijing looks to combat trade tariffs by weakening the yuan in

order to maintain its export competitiveness.