Market Spotlight: USDCNH Falling as China Reopening Story Gathers Pace

USD Under Pressure USDCNH has seen a sharp sell-off over the last week or so. Part of this can be attributed to the softening we’ve seen in USD while the other driver is clearly the developments we’ve seen in China. On the USD front, the greenback has been well sold recently though the perspectives behind the move have shifted somewhat. USD had been weakening over prior months in line with the growing view that the Fed would soon pivot on rates. This fuelled an unwinding of USD longs which drove the early part of the declines in USDCNH.US Growth ConcernsHowever, more recently an upside in US labour data (specifically jobs and wages growth) has raised concerns that inflation might have lost downward momentum last month. If this proves to be the case at next week’s CPI release, this might well see the Fed emphasising the need to push ahead with further rate hikes, even at a slower pace. This view is seeing renewed growth concerns in the US, weighing on USD near-term.China ReopeningLooking ahead, the pair looks vulnerable to further downside given the growing focus on China reopening. The latest data this week underscored just how impacted the Chinese economy has been by the government’s zero covid policy. This, in line with China easing a slew of covid restrictions this week, if fuelling expectations that China will undergo a full reopening sooner rather than later. As this story gathers more traction we can expect USD to continue to fall against a rebounding CNH.Technical ViewsUSDCNHThe reversal lower in USDCNH has seen the market forming a head and shoulders pattern with the recent sell off marking a break below the neckline at 7.0425. While below here and below the broken bull trend line too, the focus is on a continuation lower towards the 6.7811 level next in line with bearish momentum studies readings.