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ZARJPY Rejected 100DMA Resistance

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Expiries for Aug16 NY cut 1000ET (Source DTCC)

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USDCNY Tactical ‘Bear’ Retracement Could Continue in Near Term

CHINA
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  • In the past week, business sentiment has started to pick up in China following the positive headlines on China ‘declaring victory’ on Covid.
  • Economic data overnight showed that PMI surveys bounced back above the 50-line threshold, with non-manufacturing PMI smashing expectations by surging to 54.7 in June (vs. 50.5 exp.).
  • Hence, we recently argued that the recovery in soft data in China could lead to further strength in domestic risky assets and CNY in the short term.
  • The technical chart on USDCNY shows the formation of a ‘bear’ retracement; the pair has been reaching lower highs in recent weeks after hitting a local high at 6.8125 in mid-May and has been oscillating around the 6.70 level in the past two weeks.
  • The dynamics of the CNH also shows that the selling pressure has eased in the offshore market with the compression of CNH-CNY spreads.
  • First support to watch on the downside stands at 6.6650 (50DMA), followed by 6.64, which corresponds to the 38.2% Fibo retracement of the 6.307 – 7.178 range (rejected in the beginning of the month).
  • On the topside, resistance to watch stands at 6.73 (downward trending resistance line).
  • Major risk of CNY remains the macro picture (geopolitical uncertainty and stagflation fears) and the negative China 10Y bond yield premium (still in deep negative territory).

Source: Bloomberg

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  • In the past week, business sentiment has started to pick up in China following the positive headlines on China ‘declaring victory’ on Covid.
  • Economic data overnight showed that PMI surveys bounced back above the 50-line threshold, with non-manufacturing PMI smashing expectations by surging to 54.7 in June (vs. 50.5 exp.).
  • Hence, we recently argued that the recovery in soft data in China could lead to further strength in domestic risky assets and CNY in the short term.
  • The technical chart on USDCNY shows the formation of a ‘bear’ retracement; the pair has been reaching lower highs in recent weeks after hitting a local high at 6.8125 in mid-May and has been oscillating around the 6.70 level in the past two weeks.
  • The dynamics of the CNH also shows that the selling pressure has eased in the offshore market with the compression of CNH-CNY spreads.
  • First support to watch on the downside stands at 6.6650 (50DMA), followed by 6.64, which corresponds to the 38.2% Fibo retracement of the 6.307 – 7.178 range (rejected in the beginning of the month).
  • On the topside, resistance to watch stands at 6.73 (downward trending resistance line).
  • Major risk of CNY remains the macro picture (geopolitical uncertainty and stagflation fears) and the negative China 10Y bond yield premium (still in deep negative territory).

Source: Bloomberg