Yuan Extends Gains

The yuan isn't content with just holding yesterday's gains and has continued to strengthen. USD/CNH last down 378 pips at 6.4167, session lows at 6.4118. The pair hasn't seen these levels since June 2018. CNH is currently on track to strengthen for the sixth straight session, its longest run since early November.

• The stronger fix for the yuan is perceived as a signal that the central bank are content at these levels.
• The yuan got an extra boost on reports that NYSE would not delist several large Chinese telecom firms, reversing the announcement from yesterday.
• 1-month CNH implied volatility rose for a sixth consecutive day yesterday (and is on track for a seventh today). IV last at 6.365% following a sell off in US stocks which saw volatility spike across the asset classes.
• On a historical basis 6.44 has been significant resistance in USD/CNH and could represent a line in the sand for the PBOC. Having taken out the level today market participants will closely follow tomorrow's fixing. There is still a chance the PBOC could intervene in the market today.




Source: Bloomberg




• The June 2018 low near 6.3760 is a significant support level. There is scope for the pair move higher, oversold RSI conditions suggest corrective pullback towards regaining the 6.50 figure, while, a confluence of 21-day SMA and channel's upper line near 6.5200 will be a tough nut to crack for USD/CNH bulls.
• Option activity in USD/CNY indicates further downside could be possible, a raft of new USD puts/CNY calls from 6.30-6.43 have been seen since the advent of 2021, with the majority expiring before April 2021.