Tech Flash – USD/CNH – Double Topped
§ USDCNH retreated from its recent high of 6.2713 in May and
tested a key support around 6.2209. A sustained move below this level could
mean a bearish breakout below a double top price pattern that could bring the
pairing towards the 6.1706. This bearish view is further supported by the
negative divergence that has been forming since the start of second quarter.
The pullback on Mon also saw price break below the 50-DMA, another bearish
signal. The break of the 6.2209-support is thus seen as a sell trigger and a
double top target marked at 6.1706 with a stop loss pencilled in at 6.2445.
§ Bearish inspiration came from the USD/CNY reference rate
that was fixed sharply lower on Mon. This was right at the start of the week
before China releases the next deluge of data for May. Trade numbers were
released on Sunday and the exports growth of 7.0%y/y surpassed the average
forecast. While the decline in imports suggests subdued domestic demand, we
expect the rest of the economic releases to reflect economic stabilization.
Better prints would gel well with a stronger yuan in the near term as investors
look for cues that that the economy is bottoming out.
§ Curiously, the fixing also coincides with PBOC’s
announcement of a targeted 50bps RRR cut for qualified banks with effect on 16
June. The latest monetary easing should benefit two thirds of city commercial
banks, 80% of non-county level rural commercial banks, 90% of non-county level
rural cooperative banks. These are meant to better facilitate credit to rural
borrowers and smaller firms. Sentiments were buoyant in onshore markets,
further supporting the CNY and concomitant CNH in the near-term.
Rgds,
Maybank FX Research
Global Markets
Maybank
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