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Fundamentals

During the Asian session on Wednesday (Aug 16th), the USDCNH mid-price was quoted near 7.1768, up 82 basis points from the previous value. After two months, China's central bank lowered the MLF interest rate again, and the 1-year rate reaches 2.5%. Meanwhile, the USDCNH surged above 7.31 due to the rapid deprecation of CNH, breaking through the end of June's high of 7.2850. In addition, the release of the July import and export data is less than expected, and recent financial risks appear, the rate cut is just a helpless move from China's central bank. Moreover, the highest point of USDCNH touched 7.3380 this morning, with the possibility to reach last year's 7.37, while August's data is likely to be worse. However, part of the depreciation pressure has been released, and the pattern is oscillating at highs, last year's 7.37 and this year's 7.37 may have a different significance. Last year, China suffered from the pandemic, while the U.S. interest rate hike was in the hottest period. The situation will not be the same this year, China's economy will recover soon, and the biggest constraint could only be the interest rates spread between the U.S. and China. Furthermore, China's economic fundamentals are positive and the central bank focuses on maintaining a good relationship, it is less likely for CNH to depreciate under the previous low. Even if CNH depreciates, the time will not be long, and it is better to keep a bullish view without going long.

Data: U.S. retail sales data rose 0.7% MoM in July, exceeding market expectations of an increase of 0.4%, the largest increase since January 2023, achieving four consecutive months of growth. Moreover, the U.S. NAHB Housing Market Index in August slipped 6 points for the first time this year to a three-month low of 50, lower than expected. The U.S. import price index in July increased by 0.4% MoM, expected to rise by 0.2%, and the previous value fell by 0.1%. The export price index grew by 0.7% MoM, and is expected to rise by 0.2%, and the previous value fell by 0.7%.

Technical Analysis

USDCNH has been overwhelming recently, only overseas quantitative investment funds go short. Due to the fact that U.S. and China interest spread reaches a year high and the USDX recovered 103, the programmed trading model is constantly going short for the CNH exchange rate, while China's business risk awareness is improving, the foreign exchange rate settlement from China's exporting business become rational. Besides, some banks are also selling the dollars, expecting that there is little momentum for CNH to depreciate. They are also fear of Chinese regulators may introduce new exchange rate stabilization policy measures at any time, raising the risk of short selling. Moreover, a lot of foreign short-selling institutions are also watching closely before moving, even if they keep a bearish view on CNH, these institutions may leave the market once a new policy is introduced. Now, the CNH is still in the upward cycle, the averages are heading upwards with dispersion, but the pattern is mixed, and the bulls are also potentially the shorts. If the bulls find it profitable to pull up, they will take profits by doing so. Currently, CNH is in the upper area of the upward channel, constantly approaching the ten-year high. There is significant resistance from the upward, and there will be less profitable to chase the appreciation of USDCNH.

Trading recommendations: Selling at highs. When USDCNH surges up to 7.3500 investors should go short with small positions, and set the stop-loss at 7.3700. In addition, the first target will be the 10-day SMA (7.2450), where investors should take profits partially and move the stop-loss to breakeven. The second target will be the 20-day SMA (7.2050).  

Trading Recommendations

Trading direction: Short

Entry price: 7.3500

Target price: 7.2450

Stop loss: 7.3700

Support: 7.2850/7.2450

Resistance: 7.3350/7.3700