Yuan Retains Strength

The US dollar reversed its fortunes on Monday, benefitting from risk off flows as markets digest the latest Covid-19 developments globally. USD/CNH, however, has managed to hold lower. The pair last changes hands at 6.4543, and touched 6.44 in early European hours.

• The rise in the yuan yesterday was the biggest rally in 2 months. 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 is significant resistance in USD/CNH and could represent a line in the sand for the PBOC. Bears need a sustained break of 2016 and 2017 lows and 78.6% Fibonacci retracement, which were made at 6.4437 and 6.4417, respectively. Below are the May 2018 high at 6.4323 and also the February and early May 2018 highs at 6.3835 and 6.3774.
• 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.