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Fundamentals

From the perspective of the data structure of foreign exchange settlement and sales in the first quarter, the first one is the cumulative current account surplus of $15.829 billion, of which the surplus in trade in goods is the main contributor, with a cumulative surplus of $44.993 billion. It is attributed to the unexpected performance of China's foreign trade export data at the beginning of this year, highlighting the vitality and resilience of China's industrial chain under the influence of weakening foreign demand, as well as the good momentum of high-quality economic development, which is expected to continue in the second half of the year. The trend is expected to continue in the second half of the year.

The second is the capital financial account deficit of $29.06 billion. Capital outflow occurred in both direct investment and securities investment, which was mainly affected by the rebound of the U.S. dollar index caused by the Federal Reserve's interest rate hike from March to now. While the inverted interest rate spread between China and the US was continuing, cross-border bond investment funds flowed out slightly, which was the main factor that made it difficult for the RMB exchange rate to appreciate in March and April. With the end of the U.S. dollar interest rate hike, the high dollar index fell, the Sino-US interest rate spread inverted convergence trend continues, the impact on our short-term cross-border capital flows will be reduced marginal, and then the restriction on RMB will be gradually reduced.

From the perspective of economic fundamentals, China has just delivered better economic data in the first quarter, showing that the economy continues its structural repair, and the magnitude of performance is still slow, which is not strong support for the RMB. However, the economic recovery is accelerating as a probable event, and the RMB will have the momentum to make up for the appreciation in the second half of the year as the economy continues to recover.

From the perspective of sentiment indicators, the onshore-offshore market price (CNY-CNH) continues to be negative, indicating that the current market still has devaluation expectations. There is still a basis for RMB appreciation in the medium term under the influence of a steady domestic economic recovery and a weaker USD.

Overall, in the short term, the current RMB stationary state reflects the market's game of economic expectations, foreign exchange settlement and sales, and the three factors of the U.S. dollar. The lack of a clear trend signal for the RMB exchange rate for the time being under the game of multiple factors, and the oscillating pattern of the USD-RMB exchange rate range still needs to last for some time. In the medium to long term, the dollar is likely to go downward, and it may be a matter of time before the dollar index falls below 100. It is expected that the RMB exchange rate will return to the appreciation channel after April, and the high point of the RMB exchange rate is expected to appreciate to 6.5 or even 6.3.

Technical Analysis

In the daily chart, since mid-March to date, USDCNH has been in the 6.85-6.90 range of operation, with narrow fluctuations, which is in sharp contrast to the previous fluctuations of the exchange rate. In the market, the current price has broken through the previous 6.85-6.90 operation range, and was at the lower edge of the operating range at the end of last year, testing the resistance of this position. The initial resistance is near 6.95, and the strong resistance is around 7.01.

However, this round of breakthrough 6.90 performance is lack momentum. Doji star appeared after surging higher for two consecutive days, indicating that above the surface of foreign exchange settlement and sales is also stronger.

Trading Recommendations

Trade direction: Short

Approach price: 6.9500

Target price: 6.7000

Stop loss: 7.0100

Support: 6.8500, 6.7000

Resistance: 6.9500, 7.0100