CNH: USD/CNH Meeting Resistance Above 6.7850
USD/CNH is finding some resistance above the 6.7850 level, which capped USD/CNH up moves in mid and late May. Still, fundamental headwinds persist. We currently sit in the low 6.7700 region.
- Calls for fresh easing in domestic policy settings remains. The securities journal quoted onshore analysts calling for lower medium term lending facility rates in the second half, and a lower RRR, either at the mid-point this year or by year-end.
- Tomorrow the 1yr MLF rate is expected to be left unchanged at 2.85%. More liquidity support could be provided by a larger MLF rollover.
- A lower MLF rate would highlight the policy divergence with the Fed and should be seen as a CNH negative all else equal.
- CNH 12 forward points have dropped into negative territory for the first time since 2019. This largely owes to the relentless move higher in US yields.
- Onshore covid trends remain adverse, with case numbers continuing to trend higher in Beijing and Shanghai. Beijing has delayed the re-opening of most schools, while Shanghai suspended a return of dine-in services. The Minhang district also plans mass covid testing on June 18th.
- 1 month USD/CNH implied vols are back close to earlier YTD highs, but the risk reversal still has room to catch up, see the chart below. The fixing bias also returned back to neutral today, although from a 5-day trend standpoint is still leaning again deprecation pressures.
Fig 1: USD/CNH 1 Month Implied Vol and Risk Reversal
Source: MNI - Market News/Bloomberg
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USDCAD TECHS: Bullish Outlook
- RES 4: 1.3173 High Nov 13 2020
- RES 3: 1.3168 2.0% 10-dma envelope
- RES 2: 1.3091 High Nov 24 2020
- RES 1: 1.3077 High May 12
- PRICE: 1.2933 @ 16:46 BST May 13
- SUP 1: 1.2914/2814 High May 2 / Low May 6
- SUP 2: 1.2737/14 50-day EMA / Low May 5 and a key support
- SUP 3: 1.2568 Low Apr 22
- SUP 4: 1.2459 Low Apr 21
USDCAD faded off the week’s highs into the close of the week, although the outlook remains bullish. Recent gains have resulted in a breach of 1.2914, May 2 high, and key resistance at 1.2964, the Dec 20 2021 high. The break of the latter marks an important medium-term bullish technical development and reinforces the positive outlook. This has opened 1.3168 next, the upper band of a MA envelope. Initial support is at 1.2914. Key support lies at 1.2714, Apr 29 low.
US TSYS: Risk-On AS Mkt Takes Adaptive Fed Seriously?
FI markets traded weaker after the bell -- 30Y Bond around upper half of the week's range but well off Thursday's highs. Little react to morning data (import prices lower than exp at +0.0%; U/Mich sentiment 59.1 vs 64 est, "lowest reading since 2013").
- Tsy 30Y Bond futures holding to narrow channel on the way down (30YY taps 3.0959 high vs. 2.9531% early Thu), curves bear steepening: 2s10s +5.017 at 33.449, 5s10s +2.367 at 4.881.
- Rates under pressure w/ focus back on Fed policy after Fed Chair Powell said he's prepared to consider larger than 50bp hikes in Marketplace interview late Thu (after downplaying 75bp moves at his press conference last week), as the committee adapts to "incoming data and the evolving outlook".
- Not that the correlation is a factor these days, but Equities did have a nice rebound on the day, SPX emini futures +99.0 at 4026.25.
- Commodities: WTI Crude Oil (front-month) holding strong +4.05 at $110.18; Gold weaker at $1807.95 -13.77.
- Next Monday Data Calendar:
- Empire Manufacturing (24.6, 15) at 0830ET
- NY Fed Williams moderated discussion, no text at 0855ET
- US Tsy $45B 13W, $42B 26W bill auctions at 1130ET
- Net Long-term TIC Flows ($141.7B, --) Net TIC Flows ($162.6B, --) at 1600ET
US: US-ASEAN Summit Concludes
The final event of the US-ASEAN summit, an exchange of views on regional and global issues, has concluded. US President Joe Biden and the Southeast Asian leaders will appear at a White House joint press event shortly.
- A livestream of the event is available here: https://www.youtube.com/watch?v=SpZz2944dmU
