USD/CNH prints four-day uptrend around 6.9500 on PBOC moves, stimulus hopes

• USD/CNH rises for the fourth consecutive day, stays around the highest levels since August 2020 marked the previous day.
• PBOC cuts RRR, policymakers show readiness for more aid measures.
• Receding hawkish Fed bets fail to tame bulls amid sluggish session.
• Full markets, US ISM Services PMI eyed for fresh impulse.

USD/CNH remains on the front foot at around 6.9480, up 0.10% intraday during the four-day uptrend heading into Tuesday’s European session. In doing so, the offshore Chinese Yuan (CNH) pair pokes the highest levels since August 2020.

While searching for the bullish catalysts, expectations of more economic measures to avoid recession join the easing covid woes in China to underpin the optimism surrounding the USD/CNH pair.

On a broader front, the chatters surrounding more aid packages to propel economic recovery seem to have favored the optimists during the full markets. That said, the incoming UK PM Liz Truss is up for a £130 billion energy plan while the People’s Bank of China (PBOC) cuts the Reserve Requirement Ratio (RRR). Further, politicians from Germany/Eurozone are all in to battle with the recession woes with a heavy push to defend energy companies and stock for winters.

“Chinese policymakers signaled a renewed sense of urgency on Monday for steps to shore up the flagging economy, saying this quarter was a critical time for policy action as evidence points to a further loss of economic momentum,” said Reuters.

Talking about the covid conditions, per Reutres, “China's Shenzhen city eased a COVID-19 lockdown on Monday, while Chengdu - the capital of the southwestern province of Sichuan - extended its lockdown for most people to Wednesday.”

Against this backdrop, the US 10-year Treasury yields rise 2.5 basis points (bps) to 3.21% by the press time. In doing so, the US benchmark bond coupons reverse Friday’s losses. Also portraying the risk-on mood could be the 0.50% intraday gains of the S&P 500 Futures, as well as a pullback in the US Dollar Index (DXY) from a 20-year high marked the previous day.

Additionally helping the pair is the CME’s FedWatch Tool that hints at the 60% chance of the Fed’s 0.75% rate hike in September, versus over 75% marked in the previous week. The easing in the hawkish Fed bets could be linked to the mixed US jobs report for August.

Looking forward, the ISM Services PMI for August, expected 55.5 versus 56.7 prior, should offer additional directions to the USD/CNH traders.

Technical analysis

Unless dropping below the previous monthly top surrounding 6.9325, the USD/CNH pair remains on the way to July 2020 low near 6.9645.