Get started

USDCNH

FX Update: Why the CNY is so strong. JPY waking up this morningSummary: The USD has weakened across the board and US long yields have risen to their highest level since June, unlike yield developments elsewhere. The strength in the Chinese renminbi needs a closer look as the fall in USDCNY accelerates, and the JPY is suddenly waking up this morning as USDJPY slips back below 105.00. Elsewhere, sterling complacency is creeping back into the picture. Trading focus: A breakdown of factors driving CNY strength The USDCNY move lower has continued apace, even accelerating in recent sessions after China recently removed a policy that was intended to limit speculation against the currency. The latest move has taken USDCNY well below the early 2019 lows and more than 7% below the highs from this spring. The move is not an accident and is driven by both fundamental factors and by the fact that China would only allow a directional move of this scale to develop if it is in the interest of its longer term agenda. So, a few factors that are driving the CNY higher and could continue to do so unless China decides that enough is enough (perhaps more likely now that the broad CNY basket is reaching the top of its multi-year band – allowing it to move more than another two percent higher would be an even louder signal). External stimulus and easing, relative domestic tightness – the PBOC has run a rather tight policy, to say the least, relative to the rest of the world, where the stimulus flood and chopping of interest rates has eroded fundamentals for foreign FX relative to the tighter domestic market in China and still very positive interest rates. As well, China had the luxury, as the world’s factory to allow foreign stimulus to provide powerful stimulus to its industries, whether for PPE or other goods. Long term interest in CNY stability – as the US-China divide and rivalry is likely to deepen over the longer term horizon, China needs to move away from its dependence on the US dollar and exposure to the weaponization of the dollar in global financial infrastructure and trade and needs to provide a stable and strong CNY to excite interest in capital flows back into Chinese asset – with China’s sovereign bond and other markets needing to deepen Biden presidency to ease pressure on China – this may be secondary and I am less convinced on this narrative, but there is a widespread belief that a Joe Biden administration will put less pressure on China than a “second term Trump unleashed” scenario. We’re not convinced, but Biden has criticized Trump’s tariff approach. Chart: USDCNH The USDCNH has now traded below the 2019 lows and the broader CNY basket at its current level is basically at the highs of the range since the spring of 2018. If China is unwilling to allow the CNY to continue stronger versus the basket, a weaker US dollar would have to do the heavy lifting and China might offset some of the pressure on its currency by buying other currencies in its reserve mix (a very opaque situation there as Chinese official reserves data has not moved in years). Further downside from here might require more pronounced USD weakness from here rather than broad CNY strength unless China is looking for a stronger currency across the board even from these levels. USD weak and US yields at long end rise to new multi-month highs The US dollar weakened yesterday on the same day that US yields rose to new highs, with much of the latter coming somewhat oddly overnight in the Asian session. The narrative driving this is apparently that stimulus will either come now or massively so later (under presumed Democratic clean sweep as odd solidify in that direction) and that this will drive US inflation rates higher and real rates lower. Democrat House Speaker Pelosi and the Trump administration are still negotiating despite yesterday’s declared deadline (from Pelosi’s side) coming and going. I am not fully convinced that this is the case and wonder if some of the bond weakness is down to the rise in bond volatility driving technical adjustments in bond portfolio allocations, whether in risk parity models or in basic ratioed portfolios as recent risky asset volatility has seen no offsetting upside in US treasuries. On that note, I am still skeptical of a major USD directional move unfolding until we get to the other side of the US election. The JPY wakes up this morning. Normally, with higher US yields we would not be looking for pronounced JPY strength, but the fact that US yields are moving independently of yields elsewhere is a bit novel and weak risk sentiment is providing a JPY boost as well – although that particularly cylinder has fired erratically at best for many months now. Regardless, USDJPY is having a poke below 105.00 suddenly this morning, a move that keeps the focus on JPY crosses and one that clashes with the recent USD weakening move as the JPY and USD have been tightly correlated in most crosses for years. Today’s G-10 rundowsn USD – I am not sold on the narrative and afraid of taking away too much from this USD weakening move – wouldn’t take much for the greenback to spoilthe latest attempt at making a directional statement. Longer term is a different matter, but we need to get to other side of election and would prefer a partial options position for now rather than high conviction spot trades. EUR – the euro running up to new highs, perhaps in part on the massive interest in the EU’s first social bonds issued directly by the EU in connection with the pandemic relief effort. Key technically for EURUSD to maintain above 1.1850 here to keep interest in a test toward 1.2000. But is market ready to get aggressive on a view on the USD before the US election result? JPY – a look at yields ex-US suggests that the JPY need not sweat the rise in US yields unless we see global long yields dragged higher still. Risk sentiment is likewise strong in EM carry trades, etc., but we’ll watch this USDJPY situation closely if we stay below 105.00 as traders may be complacent on hedging flow risks if the JPY rally move here broadens. GBP – sterling taking back about half of the recently lost terrain on the latest rhetoric and some sources suggesting that some of the UK position is theatre . The EU’s Barnier made flattering overtures on the UK’s sovereignty and said a deal is within reach in a speech this morning. CHF – no spin here – below 1.0700 in EURCHF needed to merit attention, and really below 1.0600. AUD – a popular short in the crosses as the RBA the only central bank able to gin up expectations of a significant shift in policy recently. That shift is likely large done. Further AUD downside would need a challenge to the reflation narrative, weaker global outlook, CNY to stop rallying, etc.. not to mention a technical break of 0.7000 in AUDUSD and 74.00 in AUDJPY. CAD – a relative winner in the crosses, but not much more range to work with to 1.3000, which my hold until we get to other side of election to see if the USD bears kicks off then. NZD – winning out relative to AUD on the RBA dovish shift, but hard time seeing significant room for further weakness in AUDNZD beyond another percent or two – watching 200-day moving average there at 1.0625 next. SEK – the krona has held in well during the recent Covid-19 resurgence and weaker outlook now for the EU, but looking for significant further EURSEK downside now a tough call. NOK – call us contrarian to further upside in EURNOK beyond 11.00 for now unless we get a new oil sell-off and more profound weakening in risk sentiment. John Hardy Head of FX Strategy Disclaimer The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
by Saxo
USDCNH and DXY Non-Confirmation Suggests Reversal Potential USDCNH has held a massive level defined by resistance in October 2017 and support from February-April 2019. Price has also turned up from the bottom of a steep bearish channel. The top of the channel is about 6.81. Strength above would be viewed as constructive. Also, every important turn over the last 3 years has been marked by non-confirmation between USDCNH and DXY. A bullish non-confirmation is in place as long as DXY is above its September low. Finally, DXY seasonal tendencies turn up now (5 year look back) and after this week (10, 20, and 30 year look backs). Visit scandex.com to view more charts and ideas.
Long
by jsaettele
ridethepig | USDCNH Long Term Macro Playbook📍 USDCNH An interesting few days for those in Chinese rates, a 100bp move in the front end, what an express train move!! Never seen anything like this before and shows the power from vol in repo fixing. PBOC will want to keep the pressure off equities, as they have been doing for some time now and hence we can see some recycling of those longs come out and make their way into bonds. This will be their only way to defend and help keep the moves to the downside contained and measured in USDCNH. In spite of the wide consolidation in Chinese Equities lately, China will be a major winner in particular from the oil crash as they were loading on the lows. The cheaper Chinese energy bill will help offset the next 12-18 month crisis. A smart move with the Oil CNY contracts as it essentially creates another mattress on the balance sheet. Later this will be described as the 'only move' that made sense and rightly so. Of course, aggressive dollar devaluation for the medium and long term is the new and decisive playbook. Sellers are happy to have held the highs, but their remaining ammunition must now make a significant impression. Those following the details of this 3rd impulsive wave may need to pull a trick or two after such a difficult battle. In any case, a test of 6.46 will be quite heart rendering, much better a deep retracement than a shallow breakup at this point .
Short
by ridethepig
1
The US Dollar is going to zero. Any PB is an invitation to sell.The USD pyramid scheme continuing its road to zero after a short term recovery. As I said back then - idk when weeks ago several times - any usd "recovery" is just an entry to short the ponzi at a good price. I would not pick any lame tiny pullback and I would have a small stop but not too small I can't (can anyone?) be precise. But I think unless the USD crashes hard, I mean REALLY hard, I don't think there will be a mega brutal recovery. So I'll bet on it when it bounces. Not sure yet but a stop of 1 ATR or less it what I'd go for it will depend on many things. By the way I dropped the indicators that I said I used a few days ago, that did not last long 😂 They get in the way and are really annoying, they do not serve any purpose honestly they just looked good. Obviously I use the ATR to sort of measure volatility and help size stops but I don't need it on the chart getting in the way. Other USD pairs are good too but I think USDCNH could end up real violent. It is accelerating since June. It is just getting more and more painful for whoever is foolish enough to be a bull (most likely the 3 retail traders that trade this pair are all furiously fighting the trend) The chinese currency had its biggest daily rise since 2005... China dumping its USD bags, foreign investors buying their currency and bonds. The chinese government are not as eager to devalue their currency and are willing to let it get stronger now. The pair of the world largest 2 economies (eurozone doesn't count you know what I mean and I'm not even sure they are up there right now) has a daily volume of $200 billion last I checked. It has an amazingly low retail trader participation, something like 20 times less than absolute garbage NZDCHF, and seems likely alot of potential investor are not paying attention (but now they heard about it, keeps mooving lower and biggest move ever - since it unpegged to the usd 15 years ago), funds, private investors... All the trend following sheep will join at some point. If retail paid attention they would buy due to low IQ but they are not relevant enough to make a pullback I do not think (and they'd sell the second it goes up rofl). Might not get good pullbacks yikes I hate when this happens. When it gets too extended no point even looking for one... The more it goes down the more money manager take notice. If it keeps going down because of a multi year fundamental reason at some point even Warren Buffett will come sell/buy. The USDCNH is just leading so hard It's going to zero. It's finally going to zero. 🔥🔥🔥🔥🔥🔥
Short
by MrRenev
7
The CNH manages to force the USDCNH exchange rate to hold steadyAs evident on the chart, the Chinese yuan manages to force the USDCNH exchange rate to hold steady this Friday’s trading sessions. Despite that, the trading pair’s prices are still widely projected to continue its bullish route and gradually head on over to its resistance level in October. However, it’s worth noting that more experts are now getting convinced that Beijing is ready to let its currency strengthen against the US dollar. This raises speculations as to whether the yuan could actually become one of the biggest currencies in the coming months. On the other hand, the US dollar’s strength was strained by the latest news about Federal Reserve Chair Jerome Powell’s indication to aid or support small business and unemployed people in the United States. According to Powell, the US Congress should prioritize those groups if they were to reallocate the funds away from backstopping the central bank’s own emergency lending programs.
Long
by Financebroker
RidetheMacro| USDCNH Market Commentary 2020.09.22✅ The optimistic numbers have proved that the world’s second largest economy is steadily recovering from the virus slump. Notably, the pair has already been falling for the 6th week in a row, therefore the report has just added tailwinds to the yuan. Moreover, the massive sell-off of the USD pushed the pair to the downside as well 📉. 📌 It’s impossible to ignore the US-China complicated relationship. There was some sign of improvement after the report of the successful phone call between two countries Recent weeks. China and the USA have promised to obey the phase-1 trade agreement, that encouraged investors. Nevertheless, there is still some uncertainty ahead of the election of the US president in November, which may significantly affect Sino-American relations. other side 📍 The Chinese central bank, the PBoC, kept the 1Y Loan Prime Rate at 3.85% and the 5Y Loan Prime Rate at 4.65%. The last time the central bank cut rates was in March.
Short
by Ridethemacro
ridethepig | USDCNH Market Commentary 2020.09.22It is a well known phenomenon that the darling of 2020 has been the Yuan. An important difference operationally for China has allowed the sharp speculators to ride the flows in the endgame of an economic cycle. We must first take a look at the outpost we spotted earlier in the year, the start of sellers activity. There are signs of some short-term dollar strength via risk which means the flows are becoming less simplistic in nature and will start to aggressively shake out the late retailers with awful entries. The continuation from this position is also down to Fed. As US continue to print and finally artificially devalue the dollar we must also track the speed of which inflation returns. Those who believe in 2% inflation making a return will be tracking the supply side chains, rather than the demand side. Less tech advancements, a pullback in globalisation and increased government intervention are bearish for US and Chinese Equities.
Short
by ridethepig
3
China’s recovering economyDespite the recent upside faced by the exchange rate, it looks like the bearish trend isn’t over yet. The prices of the US dollar to the Chinese yuan exchange rate should continue to buckle and get lower, hitting its support line in the latter half of the month. The positive sentiment in China’s recovering economy is helping bearish investors keep the pair grounded in the trading sessions. Meanwhile, it was just recently reported that the United States President, Donald Trump, raised the idea of decoupling the two biggest economies. Trump suggested that separating the United States from China would not hinder the two powerhouses economically. This idea could hurt the US dollar as the recovery of the American economy can be tied to some of its businesses and activities with mainland China. With the presidential elections fast approaching in the US, the market is bracing itself to the possible outcome, whether it would be Biden or Trump again.
Short
by Financebroker
Let's just print money 🎇 Let's just tax the rich 🎇USA 🛬💥Wealth inequality in the last 200 years has been the highest in human history. This is based on various records, estimates, and just a bit of common sense. And for 200 years the public has been looking for magic tricks that sound like "lose 50 pounds in 2 weeks with no effort". The public enjoys job security and have a government that provides for them, but does not understand we live in a universe where nothing is created everything is transformed. Their security and comfort comes at a price: freedom and wealth. People that the government treats as enemies, that have no security, that take all the risk, that are held responsible for the wellbeing of their workers, of course they reap a huge reward in exchange. It is even frustrating that the public think they can have anything for free. They are basically selling their time for money, an accurate name for this system would be wageslavery, now it is not called like this because of "stigma" or in other words emotions. But few will get far by being slaves. Back in Rome gladiators could become superstars, rich, buy their freedom, and live in wealth. Today corporate executives can start as basic slaves and end up director or CEO and get wealthy, but most slaves will stay at the bottom. Most of the public selling themselves for security is NEVER going to end up in greater wealth inequality. 200 years... will the circle ever end? In the USA after Trump election the corporate tax went down, and he let companies bring their offshore money home. This seems to have had no effect on the buyback program trend that continued follow the same path it started in ~2010. This is how it goes: Companies "reinvest" their profits rather than have them be taxed => Stock market bubble => Spreads to the housing market => Rents go skyhigh => The public gets angry and fights for more income and corporate taxes (most of the public is surprised when anyone mentions most big wealth is not created via income but asset appreciation). The public fights for cheaper rents by fighting to make the rent more expensive 🤷‍♂️. I think a good 90% of the public does not know the difference between purchasing power & currency. The only way the government can increase person A purchasing power is by taking it away from person B. It's like they are all 5 years old it really is crazy. There is no "taxing surplus". If person B has plenty of pieces of paper with a number of them as "surplus" then the government taking that away reduces his purchasing power by ZERO. Adults believing in Santa Claus and the Tooth Fairy. Meanwhile I never bought it not even at 5 years old. Ireland had an ath corporate tax of 50% in 1982, and it was down there with the poor countries (not super poor but below all the rich ones), with Hong Kong, Oman, Gabon, etc). African country Ghana had a higher GDP/Capita than Ireland. The USA had 2.5 times Ireland GDP/Capita. China was sooooo far down. This was almost 2 decades after their cultural revolution and they were still at pretty much zero o.0 countryeconomy.com Fast forward to 2019. Gabon and Ghana are not the poorest African countries but they are POOR. Gabon GDP is at about 8k/person, Ghana $2200 - this may not seem that shocking but let me tell you Ghana GDP per capita in NOMINAL terms was at 3 times that in 1982 ! Now Ireland has the 4rth highest GDP/capita in the world at $77,000. Hong Kong which is has corporate and income taxes of around 16% iirc - far lower than USA France UK etc 30%+ corporate tax and 45% income tax - has grown to 50k one of the highest in the world. Singapore same story. But GHANA. How do you go from being as wealthy as average european countries to become a 4rth world country? Only 2 ways: ethnic wars (poor in real wealth but rich in diversity) OR socialism/high regulations & corporate taxes. I think other than making it harder for businessmen - er people (there's a whole lot of women doing business in west africa I think - no cold winters = different culture women did not just stay at home half the year), the country also was overwhelmed by migrants especially from Sierra Leone & Liberia (the failed country built by freed american slaves) the places they used to raid for hundreds of years to pick up slaves and sell them. Idk maybe they felt guilty like the USA now? Well see the result... The OECD has a document about migration in the west african country: www.oecd.org "A country can not tax itself into wealth" Mainstreet is euphoric about the stock market. Tesla bulls are foaming at the mouth. Memories... Permabulls Warren Buffet & Charlie have been buying gold stocks as well as japanese trading firms all of them (Panic? Didn't have time to do their research?) after selling US banks & airlines. The USA will never go down they said. Hey they might be right. What will go down will the the SA not the U SA. Macro analysis has more elements than just monetary policies & unemployement. Migrations (in or out) as well as corporate tax and other will dictate what direction a country goes. Data analysis has shown that a country economic prosperity was almost entirely reliant, as well as directly correlated, to the top 5% of the country. And nowhere is safe (except maybe Monaco). Remember the example of Ghana. Inflation (2019) adjusted a per person GDP of $16,563 in 1982 (France: 29,000; UK: 26,650; Germany: 24,200; Ireland 16,314; Spain 13,850; South Korea 5485; Turkey 5000; China 757 LOL). A per person GDP in 2019 of $2223 down ripple percent (France: 40,471; UK: 42,146; Germany: 46,427; Ireland 80,300 gee; Spain 29,442; South Korea 33,500; Turkey 9,500; China 9,600 thanks state capitalism & SEZ). The USA, or what's left of it can, in the very real world, go down to absolute poverty. It is in the greatest bubble ever it's absolute insanity. Irrational is not a strong enough word for this market. Hysterical maybe. Really not that hard to invest long term. Look for the countries business friendly. Then go from macro to digging down aaaaand I don't know how to do this. Sounds boring. Learn or hire someone maybe. Maybe I would just buy a basket of slow growth diversified safe indexes in business friendly countries. If the usd or us indices start to violently go down in waves lasting days or weeks now that I know what to do. China which is holding the biggest usd ponzi bags has made no secret of its fears. And they have been dumping, and continue to dump. Am short USDCNH. Right now the USD bears are at ath, it's more shorted than it has been at least in years. I also have a long on usd against another currency. Even if very shorted it can go make a big move down before bouncing, but once it starts to bounce it can really go up forcing speculators to over, unless the central bank come out with a bazooka literally robbing money from the ignorant US public (that are overly joyful about it) and putting it in the pocket of guys like me. China, speculators, the FED, every one is selling (or increasing the available supply by printing same result). If the price keeps going down China could panic sell big chunks at once. To be convinced a new trend going up is / might be starting I'd want a strong green move or a bottom and not a tiny one. America will be a net exporter again! They are going to become a big net exporter of wealth. Thanks guys 💖
Long
by MrRenev
3