CNH: USD/CNH Lower Amid Broader USD Sell-Off, Recent Ranges Still Holding
Jul-21 21:51
Spot USD/CNH sits near 7.1715 in early Tuesday dealings, after CNH gained 0.14% for Monday's session. Broader USD sentiment faltered, the BBDXY off around 0.50%, while the DXY fell close to 0.65%. Spot USD/CNY finished up at 7.1694, while the CNY CFETS basket tracker edged down a little to 96.10 (per BBG).
- USD/CNH technicals are broadly unchanged. There may be some focus on whether we can sustain sub 7.1700 level in the near term, but greater focus is likely to rest on potential support at the low 7.1500 area, which marked recent lows. On the topside the 50-day EMA resistance point remains intact, near 7.1910 currently.
- The USD suffered amid a pull back in US Tsy yields. We are off recent highs (the 10yr back to 4.38%), which pushed US-CH yield differentials lower. China's 10yr bond yield edged a touched higher yesterday, as China announced approval of a large scale dam project. Still, US-CH yield differentials remain within recent ranges, with the US leg likely to remain the dominant driver.
- In the equity space, positive trends continued, the CSI 300 index finishing close to 4086, fresh closing highs YTD. The Golden Dragon Index did lose a little ground in US trade for Monday, down 0.28%.
- US Tsy Secretary Bessent stated that the next round of talks with China officials may move beyond US-China trade and include China purchases of oil from Russia and Iran (per a CNBC interview).
- Elsewhere our China policy team noted: "European Commission President Ursula von der Leyen will warn Chinese Premier Li Qiang at a one-day summit in Beijing on July 24 that the state of trade relations is "unsustainable,” raising issues of China's industrial overcapacity, as well as lack of market access and free and fair competition, the official said."
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USDCAD TECHS: Corrective Cycle
Jun-20 20:00
- RES 4: 1.4111 High Apr 4
- RES 3: 1.4016 High May 12 and 13 and a key resistance
- RES 2: 1.3832/1.3920 50-day EMA / High May 21
- RES 1: 1.3747 High Jun 19
- PRICE: 1.3733 @ 16:23 BST Jun 20
- SUP 1: 1.3540/3521 Low Jun 16 / 1.0% 10-dma envelope
- SUP 2: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
- SUP 3: 1.3473 Low Oct 2 2024
- SUP 4: 1.3410 1.764 proj of the Feb 3 - 14 - Mar 4 price swing
The trend needle in USDCAD points south and this week’s recovery is considered corrective. Resistance at the 20-day EMA, at 1.3710, has been pierced. A continuation higher would signal scope for a stronger retracement and expose pivot resistance at the 50-day EMA, at 1.3832. For bears, a reversal lower and a resumption of the downtrend would pave the way for an extension towards 1.3521, envelope-based support.
LOOK AHEAD: Next Week's Key US Data Releases
Jun-20 20:00
US data is headlined by Thursday’s Q1 GDP revisions and Friday’s PCE report for May although there are plenty of other releases that will be watched with interest throughout the week.
- Q1 GDP data will be “stale”, especially being a third release, but it will nevertheless help the Fed assess whether its previous view on the economy is playing out. Recall that Powell at the May FOMC press conference said he expected consumption and inventories to have increased more strongly than first reported in the flash release. Last month’s second release showed that only partly played out, with inventories revised even higher but consumption revised down from 1.8% to 1.2%. Nevertheless, Powell at Wednesday’s June FOMC press conference still described the downward revised 2.5% for PDFP as “solid”.
- The May PCE report should be more impactful for clues on latest consumer momentum amidst strong income growth. Retail sales saw the largest monthly drop since March 2023 although the closely-watched control group was stronger than expected. As for inflation metrics, core PCE is seen around 0.15% M/M in May judging by unrounded estimates after the usual CPI, PPI and import price inputs, after 0.12% M/M in April.
- As for the other releases to watch, Monday’s preliminary June PMIs will give timely updates on wider activity after Empire and Philly Fed manufacturing surveys remained in contractionary territory. We also expect greater than usual focus on housing data (existing home sales Mon, new home sales Wed) after what have been some troubling releases across both construction and sentiment. Tuesday then sees the Conference Board consumer survey for an alternative look at the improvement since the de-escalation in trade policy before Wednesday’s advance trade data for the latest post tariff front-running update.
US TSYS: Tsys Narrow/Higher Range, Trump Been "Speaking to Iran"
Jun-20 19:53
- Treasuries look to finish higher Friday, top half of narrow range. Early risk-on tone followed unscheduled comments from Fed Governor Waller on the possibility of a rate cut in July and headlines that Iran was ready to discuss limitations on uranium enrichment plans.
- No market reaction to late Pres Trump comments to reporters & social media posts: "WILL MAKE TRADE DEAL WITH INDIA, PAKISTAN," "BEEN SPEAKING TO IRAN," "IRAN WANTS TO SPEAK TO US, NOT EUROPE" - Bbg posts. Trump adds Europe is not going to help with Iran, nor will China; Trump "might" support Israel/Iran ceasefire
- The price details of the Philly Fed manufacturing survey for June showed a pullback from elevated rates for both prices paid and prices received in the current period. Six-month ahead expectations for prices paid pushed higher again though, and at 68.9 is getting closer to the high of 77.8 from Jan 2022, although prices received isn’t quite as relatively elevated.
- Tsy Sep'25 10Y futures trades +5 at 110-30.5 vs. 111-03 high, remains below key resistance and its recent high of 111-14+, a Fibonacci retracement and the Jun 5 high. Clearance of this hurdle would be bullish and highlight a stronger reversal. This would open 111-30, a Fibonacci retracement.
- Curves steeper, 2s10s +2.611 at 47.137, 5s30s +3.530 at 93.143. 10Y yield at 4.3791% vs. 4.3593% low. Projected rate cut pricing back to 50bp by December.
- Cross asset: Stocks mixed (DJIA +29.34 at 42,202.0, SPX eminis -20.75 at 6013.5), Gold mildly lower at 3365.05, Bbg US$ index little firmer at 1210.80 +1.10.
