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Fundamentals

During the Asian session on Thursday (June 8th), the CNH/USD mid-price was at 7.1280, depreciating 84 basis points from the previous session. The CNH exchange rate extended its narrow oscillation and is currently trading around 7.1505. Yesterday, the USDX weakened slightly and the CNH opened higher and once touched an intra-day high of 7.11. However, the release of China's May export data was worse than expected, dragging down the CNH from rising, and the short-term weak pattern is expected to continue. Focus on Friday's U.S. May inflation data and next week's Fed rate decision.

News: The World Bank released the latest edition of the Global Economic Prospects report on the 6th, expecting the global economy to grow by 2.1% in 2023, up 0.4% from the January forecast, but still lower than the 3.1% in 2022. Besides, China's economy will grow by 5.6% in 2023, up 1.3% from the January forecast.  

The continued rally of the USD has trapped non-US currencies under pressure in May, but relative to other non-US currencies, the CNH exchange rate depreciated more, with the USD/CNH exchange rate bouncing from 6.90 to 7.15, or more than 3.6%. On the one hand, China's domestic economic recovery is less than expected, showing a gap between strong expectations and weak reality, while PMI is below the threshold in the past two consecutive months. On the other hand, the U.S. banking crisis and the debt ceiling crisis ignited risk aversion sentiments. Moreover, coupled with strong U.S. labor demand and inflation-sticky U.S. bond yields continuing to soar, the USDX surged further. In addition, the spread inversion between China and the U.S. further expanded, including a more-than-320 bps inversion in 1-year Treasury bonds. But from 2013, China introduced new policies when the PMI stayed below the threshold for over 2 months, which will happen the same this year. Recently, the big banks have cut interest rates on the deposit side to make room for LPR rate cuts. Moreover, high interest rates in the United States may maintain for a long time, but the fundamentals of the economy tend to weaken. Overall, the CNH exchange rate may be able to maintain two-way fluctuations at 6.95-7.20 in June.

Technical Analysis

Regarding the daily chart, USDCNH is under an ascending channel with a slope between 30°-45°, exhibiting an intact pattern. Meanwhile, the exchange rate has stayed above the 5-day, 10-day, and 20-day SMAs, demonstrating a bullish trend. Nonetheless, MACD is approaching the overbought area, alarming for a risk of falling from highs soon. The initial resistance above is at 7.20 with further resistance near 7.25. If USD/CNH successfully breaks it, the strong resistance above will be near 7.37, which was the previous high. From the other side, the initial support will be in the range of 7.0-7.02, with further strong resistance near 6.9.

Today's trading plan: Don't chase to buy during the appreciation but instead, try to sell with small positions when it surges. The price should be near 7.16 and the stop-loss at 7.18. Additionally, try to take profit partially at 7.13 and set the remaining positions for break even. The secondary target should be 7.11.  

Trading Recommendation

Trading direction: Short

Entry price: 7.1600

Target price: 6.9500

Stop loss: 7.21000

Support: 7.0200/6.9000

Resistance: 7.2500/7.3700