USDCNH marches towards 7.0700 amid Covid, geopolitical fears ahead of US Retail Sales

• USDCNH picks up bids to extend the previous day’s rebound from six-week low.
• A jump in China’s Covid count, decline in new home prices drown Chinese currency.
• Alleged Russia missile strike on Poland underpins US Dollar’s safe-haven demand.
• US Retail Sales, risk catalysts are the key to near-term directions.

USDCNH takes the bids to refresh the intraday high near 7.0670 during Wednesday’s mid-Asian session. In doing so, the offshore Chinese Yuan (CNH) currency pair cheers the broad US Dollar recovery amid the risk-off mood.

Among the key catalysts that drive the risk-aversion, the risk-negative headlines surrounding China’s Covid conditions and fears of geopolitical concerns between the West and Poland seemed to acquire the front seat.

China’s National Health Commission (NHC) reported around 17,772 new Covid cases on Tuesday, the highest total since April 2021. It should be observed that the manufacturing hub Guangzhou, unfortunately, accounts for more than a quarter of the national tally.

On the same line, Russian-made missiles killed two people in the European nation bordering Ukraine and amplified geopolitical fears due to its status as a member of the North Atlantic Treaty Organization (NATO). Even if Moscow’s military denies any such attempt, the NATO Ambassadors and the members of the Group of Seven Nations (G7) are up for emergency meetings and raised fears.

On the flip side, softer US data and the Federal Reserve (Fed) policymakers’ assent to the market’s 50bps rate hike concerns seem to challenge the pessimists. On Tuesday, the US Producer Price Index (PPI) for October dropped to 8.0% YoY versus market forecasts of 8.3% and the downwardly revised prior of 8.4%.

Against this backdrop, the S&P 500 Futures drop 0.40% while the US 10-year Treasury yields remain sluggish near 3.76% at the latest.

Looking forward, headlines for the Coronavirus and Poland are likely to gain major attention but the US Retail Sales for October, expected 1.0% versus 0.0% prior, will be more important for clear directions. It should be noted that the divergence between the Fed and the People’s Bank of China (PBOC) keeps the USDCNH bears hopeful.

Technical analysis

Tuesday’s Doji candlestick teases USDCNH buyers targeting the 50-DMA hurdle surrounding 7.1475. Alternatively, a seven-month-old support line, near 7.0010, could challenge the pair sellers.