China’s Support Measures and USD Softness Boost CNH Gains
Recent optimism stemming from China’s support measures and a weakened US dollar has led to gains in the CNH, according to OCBC’s FX strategists Frances Cheung and Christopher Wong.
USD Softness Leads to CNH Gains
- USD/CNH briefly reached a low of 6.9950 before bouncing back.
- The significant drop in USDCNH below a key psychological level resulted in other USD/AXJs trading lower.
- USD/SGD approached 1.28-lows while USD/MYR briefly dipped below 4.11 (compared to yesterday’s close of 4.1578).
- Factors contributing to this trend include further gains in the RMB, positive regional growth outlook, ongoing Fed easing cycle, and a weaker USD, all of which are expected to benefit AXJ FX.
Market Trends and Outlook
- USD/CNY was fixed at 7.0202, aligning closely with Bloomberg’s consensus of 7.0206.
- There were concerns about policymakers intervening to prevent RMB appreciation, but no strong pushback was observed in the daily fix.
- RMB’s future trajectory will likely be influenced by China’s equity markets.
Technical Analysis and Trading Recommendations
- USD/CNH currently stands at 7.0130 levels, with a bearish momentum on the daily chart and RSI nearing oversold conditions.
- Intra-day retracement is possible, with resistance levels at 7.0330 (50% fibo) and 7.07, and support at 6.99 and 6.9540 (61.8% fibo).
- The bias leans towards selling rallies in the current market environment.
Analysis and Implications for Investors
The recent developments in the CNH market, driven by China’s support measures and USD softness, offer valuable insights for investors and traders alike. Here’s a breakdown of the key points and their implications:
Key Points:
- China’s support measures have bolstered market sentiment and contributed to CNH gains.
- Weakening of the US dollar has further supported the CNH’s upward momentum.
- Technical indicators suggest a bearish outlook for USD/CNH with potential resistance and support levels identified.
Implications for Investors:
- Investors should monitor China’s equity markets for cues on RMB’s future performance.
- Opportunities for trading may arise from the current market dynamics, with a bias towards selling rallies in USD/CNH.
- Understanding the interplay between China’s economic policies and global FX trends is crucial for informed decision-making in the financial markets.