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Fundamentals

During Monday's (July 10th) Asian session, USDCNH was at 7.2079, down 20 basis points compared to the previous value, and it is currently trading near 7.2400. In the past two days, China's central bank sharply reduced the median price of the CNH exchange rate, and the determination to maintain exchange rate stability is more obvious. Last week, the CNH ran broadly in the range of 7.21-7.2650 and closed at 7.2250 on Friday. Besides, the short-term possibility of an upward breakthrough is lowering, 7.30 is still the strong resistance above, and the space below could be managed by the supervision department. If USDCNH breaks the previous high, appreciation is expected to further strengthen. In the short term, the USD will still extend the previous pivot, but it will shock downward in the medium- and long-term. Also, USDCNH is expected to ascend by 100 basis points within this year. This week's focus is on the U.S. CPI data, and the overall CPI data may fall sharply while the market is more concerned about the performance of core inflation. If the core CPI data is in line with or below expectations, it will be the evidence to show an accelerated-descending core inflation, which will ease the Fed's pressure to raise interest rates and thus significantly depress the USD. However, once the core CPI data is above expected, it will prove that the U.S. core inflation is still stubborn, and the Fed may switch to a more hawkish attitude.

Investors should pay attention to the U.S. June CPI and PPI data, the Fed's Beige Book, and speeches to be released this week. After Friday's contradictory Nonfarm Payrolls data hit the Fed rate hike bets, further speeches from the Fed should be watched this week.

Data: U.S. June quarterly Nonfarm Payrolls increased by 209,000, the smallest increase since December 2020, and the expected number was 225,000 while the previous value was revised from 306,000 to 339,000. In addition, the unemployment rate in June fell 0.1% to 3.6%, in line with expectations. The average hourly earnings of employees accelerated, up 4.4% YoY, the expected growth was 4.2% and the previous value was 4.3%. Meanwhile, the growth is 0.4% MoM, compared with 0.3% expected, and the previous value was revised from 0.3% to 0.4%. The employment participation rate was 62.6%. ADP and non-farm payrolls data released last week differed greatly, making investors questionable about the Fed's policy again.

Technical Analysis

Regarding the daily chart, the CNH slowed the depreciation last week when USD/CNH crossed the 5-day and 10-day SMA. With the 5-day SMA crossing the 10-day SMA, USDCNH forms a rounding top pattern, plus that the MACD forms a death cross at the oversold area, the USD/CNH bulls will dominate soon.

Today's trading plan: Keep selling at highs, go short with small positions when USD/CNH reaches the 5-day SMA (7.241) and set the stop-loss at 7.255. Furthermore, the primary target will be the 20-day SMA, at which traders can take profits partially. Traders should set breakeven positions for the remaining and locate the second target at 7.19.

Trading Recommendations

Trading direction: Short

Entry price: 7.241

Target price: 7.190

Stop loss: 7.255

Support: 7.210/7.190

Resistance: 7.255/7.285