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Fundamentals

In the Asian session on Wednesday (July 19th), the USD/CNH mid-price was quoted near 7.1486, down 33 bps from the previous value. Currently, USD/CNH is trading near 7.2280, and it has been rebounding from its lows over the past week, with the main factors being that China's Q2 data was worse than expected under a low base and the USD rebounded. However, it is worth noting that the USDX has recently seen a significant decline, from a high of 103 to below 100, resulting in a downward movement of the USD/CNH exchange rate, which once touched 7.12. In addition, the range is also as high as 1,600 bps, and the current decline has been a significant retracement of up to 60%. At present, if the previous trend was downward, the current rebound is sufficient, and USD/CNH will continue to depreciate. Nonetheless, if the previous decline was a retracement, then the current uptrend is a new round of appreciation. Compared to the last time when the USD/CNH exchange rate rose to a high of 7.28, the fundamentals for this time appear to be a big change. Firstly, China's economic fundamentals have appeared more positive signals, and secondly, the United States interest rate hike has been determined to end, and the USDX will gradually weaken in the second semester. Overall, the CNH exchange rate doesn't have any condition to depreciate, on the contrary, there are a series of support factors, and CNH will surge later this year.

Data: China's GDP amounted to 5,930.34 billion CNH in the first half of this year, up 5.5% YoY at constant prices, and 6.3% in the second quarter, up 1.8% from the first quarter, but the two-year average annual growth rate fell back to 3.3%. Among them, the YoY real GDP growth rate of the primary industry stabilized at 3.7%, while the YoY real GDP of the secondary and tertiary industries rebounded to 5.2% and 7.4% respectively. In terms of QoQ growth, the quarterly GDP growth rate slowed to 0.8% in the second quarter.

Technical Analysis

Regarding the daily chart, the CNH currency exchange rate goes smoother compared to other currencies. Besides, a main logic should always be traded for a period, and from USD/CNH, the SMAs are still heading downward side by side, and the 5-day SMA crosses below the 10-day and 20-day SMAs. Furthermore, the MACD is also forming a death cross but the opening has converged, and the downward trend may be maintained. Nevertheless, USD/CNH has seen growth for 4 consecutive days, and the trend tends to be positive. Comparingly, the risk of chasing the appreciation is also accumulating, and short traders should patiently wait for a rebound before selling off, just give it time.

Today's trading plan: Keep selling at highs as the main logic. When USD/CNH reaches the 5-day SMA (7.248), traders can go short with small positions and set the stop-loss at 7.256. Moreover, the primary target will be the 20-day SMA (7.22), where investors can take profits partially. For the rest, investors should move the stop-loss to breakeven, and refer to the 10-day SMA (7.20) as the second target.

Trading Recommendations

Trading direction: Short

Entry price: 7.248

Target price: 7.200

Stop loss: 7.256

Support: 7.220/7.190

Resistance: 7.256/7.285