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Fundamentals

During the Asian session on Tuesday (July 4th), the CNH/USD mid-price was quoted around 7.2046, down 111 basis points from the previous value, and it is currently trading around 7.2501. With the USD oscillating around 103 in recent days, the CNH exchange rate has descended for 3 consecutive days. Last night, the USD/CNH exchange rate dropped from a recent high of 7.2855 to 7.25, over 300 points. The main reason is that numerous bank branches have lowered the interest rate quotes for USD deposit products from a maximum of 4.3% to 2.8%, while the original product (costs over 50,000 USD) which offered an annual interest rate of 4.3%, has been canceled. Previously, the large interest rate differential between domestic CNH and USD deposits, as well as the high interest rates maintained by the US money market funds, have attracted capitals to hold USD overseas and domestically, and even exchanged CNH for USD, resulting in the depreciation of CNH and weak real demand. Therefore, the lowering of the interest rate on USD deposits can increase the foreign exchange settlement of these capitals when they see "no profit" in USD, which will instead significantly ease the pressure of CNH depreciation.

Essential data will start to be released on Thursday, including the Fed minutes, unemployment data, ADP data, and Nonfarm Payrolls data.

Data: China's official manufacturing PMI for June was 49.0%, up 0.2% MoM, which is an improving result. Besides, the official non-manufacturing PMI was 53.2%, down 1.3% MoM, still above the threshold. Meanwhile, the comprehensive PMI was 52.3%, indicating that the overall expansion of Chinese enterprises' production and business activities continued.

Technical Analysis  

Regarding the daily chart, the CNH continued to depreciate last week, and refresh the previous record. Additionally, 7.30 is the previous strong resistance level, but also the space where regulation can manage. From May, the CNH has started a unilateral depreciation trend with a smooth rising slope, and the two-way fluctuations just exist in writing. However, after the USDCNH hit a high on June 30th, it began to pull back with a doji star at highs, followed by 2 consecutive depreciations. At present, USD/CNH has plunged below the 5-day SMA, and if it drops below the 10-day SMA again, it may turn weak in the short term. Furthermore, if USD/CNH fails to stand on the 5-day SMA (7.255), it may continue to retrace with initial support below at the 10-day SMA (7.232) and further support at the 20-day SMA (7.19). Nonetheless, if 7.255 is recovered, the initial resistance above will be at 7.265 and further resistance at 7.285.

Trading plan for today: Keep selling at highs. Try to go short with small positions when USD/CNH reaches 7.255, and stop loss at 7.265. Also, the primary target will be 7.23, from which traders can take profits partially. About the remaining positions, try to place breakeven positions when setting the secondary target at 7.19.

Trading Recommendations

Trading direction: Short

Entry price: 7.255

Target price: 7.190

Stop loss: 7.265

Support: 7.232/7.190

Resistance: 7.265/7.285