{x} | Trading.live

Fundamentals

During the Asian session on Tuesday (June 20), the USDCNH mid-price was quoted at around 7.1596, up 395 basis points from the previous value. It is currently trading around 7.1774. Yesterday, the dollar index rebounded slightly while the yuan depreciated sharply. USDCNH closed near 7.1630, up about 400 points from the previous trading day. It was mainly because China's policy was delayed over the weekend and thus the market returned to trade a weaker economy. In addition, late June is China's traditional period of dividend distribution and forex purchases. On June 26 alone, there was a demand for $6 billion in dividends distribution from China Mobile. Large central enterprises act a few trading days before the dividend distribution date, resulting in strong intra-day purchases of foreign exchange. The USDCNH is expected to remain strong in the short term. This morning, China's central bank lowered both the 1-year and 5-year LPR by 10 basis points. Policies have been carried out, which will moderate the depreciation of the CNH to some extent. Currently USDCNH is approaching the 7.20 mark, coming to a strong resistance area. Now we can remain bullish but not enter long positions. We need to wait patiently for the rise to slow down to have higher odds and a higher win rate by shorting.

Data: The U.S. June NAHB housing market index rose to 55, a new high since July 2022, beating the expected 51 and the reading of 50 last month. It reflects that confidence among U.S. homebuilders has hit its highest level in nearly a year. China's 5-year LRR was cut 10 bps to 4.2% (vs. prev 4.3% and expected 4.15%) and its 1-year LRR was cut 10 bps to 3.55% (vs. prev 3.65% and expected 3.55%).

Overall: The main risk to the dollar index comes from the wavering Fed monetary policy, which will last for some time. If the core inflation in June and July is still at 5%, and the job market heats up more than expected again, they may force the Fed to tighten monetary policy again, which will lead to a stronger U.S. index. But this is perhaps not the most concern for the market. The core logic of the current USDCNH trading lies in the economic fundamentals of China and the U.S. This round of sharp depreciation of the CNH exchange rate was mainly due to the continued weakening of the Chinese economy, while the U.S. economy is relatively resilient. Investors need to pay attention to changes in fundamentals, and the effect of Chinese policies and the introduction of new policies. Although the CNH is depreciating fast now, it may appreciate faster later.

Technical Analysis

In the daily chart, USDCNH is still in the upward channel in a big timeframe. But there is a double top pattern formed in the last two weeks. The MACD indicator also shows a death cross. Investors need to be alert to the surge to 7.19 followed by a drop. And the 5-day and 10-day averages began to stick together, and the bullish momentum is gradually weak.

Today's trading plan: not to chase the market to go long. Try to enter small short positions when the pair surges to around 7.1850. The stop loss can be set at 7.22, and the first target is 7.11 at which we can partially take profits. Then the stop loss can be moved to breakeven, with the second target set at 7.02.

Trading Recommendations

Trading direction: Short

Entry price: 7.185

Target price: 7.1100

Stop loss: 7.22000

Support: 7.1100, 7.0000

Resistance: 7.2000, 7.2500