This daily digest focuses on Yuan rates, major Chinese economic data, market sentiment, new developments in China’s foreign exchange policies, changes in financial market regulations, as well as market news typically available only in Chinese-language sources.
– The offshore Yuan remained stronger than the PBOC’s guided level as well as the onshore Yuan.
– China’s foreign reserves continued to drop in December 2016 but maintained above $3 trillion.
Yuan Rates
– The Yuan’s overnight borrowing cost in Hong Kong dropped to 14.05% on Monday from 61.33% last Friday, though still significantly above an average daily rate of 2.86% in 2016. The PBOC weakened the Yuan by -594 pips or -0.87% against the U.S. Dollar on the day, the largest drop by percentage since June 2016. Despite cheaper borrowing costs and a weaker guidance for the Yuan, the USD/CNH failed to break above its prior swing-high amid an unclear outlook of the U.S. Dollar. As of 10:20am EST, the offshore Yuan traded at 6.8771 against the Dollar, which was stronger than the onshore Yuan, trading at 6.9344.
USD/CNH 240-mintues
Prepared by Renee Mu.
Our Currency Strategist Michael Boutros gave out the technical setup for the USD/CNH in the near term.
USD/CNH 1-day
Prepared by Michael Boutros.
USDCHN turned from slope resistance early in the year on building bearish divergence. The pair failed to hold below near-term slope support last week with the subsequent rebound now testing confluence resistance around 6.8844– this level is defined by the 50% retracement of the decline off last week’s high, the median-line of the descending pitchfork formation & parallel resistance extending off the 3/16 high.
The broader risk remains weighted to the downside while within this near-term slope with our bearish invalidation level set to 6.9452. A rally surpassing this level would be needed to mark resumption of the broader uptrend. Key support remains with the lows we made last week with a trendline confluence converging on that level over the next few days at 6.7818. A move below the 61.8% retracement at 6.7585 would suggest a more meaningful correction is underway with such a scenario targeting 6.6820-6.6950.
