USD/CNH pauses Fed-induced losses near 6.9000 on softer China Caixin Manufacturing PMI

• USD/CNH remains sidelined after refreshing intraday low, drops to one-week low during three-day downtrend.
• China Caixin Manufacturing PMI drops to 49.5 versus 50.3 expected and 50.0 prior.
• Fed fails to impress hawks despite marching market forecasts of 0.25% rate hike.
• US NFP, risk catalysts eyed for clear directions.

USD/CNH prods a three-day downtrend as it seesaws around 6.9000, refreshing the weekly low near 6.8992 at the latest, after witnessing a negative surprise from China activity data on early Thursday. It’s worth noting that the Federal Reserve’s (Fed) dovish hike favors the offshore Chinese Yuan (CNH) pair bears as traders return after a long weekend.

China’s Caixin Manufacturing PMI for April drops to 49.5 versus 50.3 expected and 50.0 prior. Earlier in the week, the NBS Manufacturing PMI for the dragon nation offered a negative surprise before the Chinese markets went on a long holiday until Thursday.

Even so, the US Federal Reserve’s (Fed) failure to convince the US Dollar buyers despite increasing the benchmark rates to the highest levels since 2007 seems to keep the USD/CNH bears hopeful. That said, Fed Chairman Jerome Powell also appeared positive while ruling out fears of a banking rout. However, a dropping of the lines in the statement suggesting the need for further rate hikes gained major attention and weighed on the US Dollar despite the hawkish move by the Fed.

Not only the Fed but the US data were also impressive but couldn’t please the greenback of late. On Thursday, US ADP Employment Change rose to 296K for April from 142K prior versus 148K market forecast. Additionally, the annual pay growth declined to 13.2% from 14.2%. Further, ISM Services PMI improved to 51.9 in April versus 51.8 market forecasts and 51.2 previous readings. It’s worth noting, however, that the S&P Global Services PMI and Composite PMI for April eased to 53.6 and 53.4 versus 53.7 and 53.5 respective priors.

It’s worth mentioning, however, that the greenback’s weakness could be linked to the growing banking turmoil in the United States and looming fears of the debt ceiling expiration. Recently, PacWest Bancorp teased an asset sale and propelled the market’s banking woes while the White House statements suggesting debt limit default could cost 8.3 million job losses weigh on the sentiment.

Amid these plays, S&P 500 Futures print mild losses by tracking the Wall Street benchmarks. It should be observed that holidays in Japan restrict bond market moves in Asia.

Having witnessed the initial reaction to the Fed moves and China data, USD/CNH pair traders should pay attention to the risk catalysts as the latest risk-off mood seem to put a floor under the US Dollar. Additionally important will be the second-tier US data ahead of Friday’s NFP.

Technical analysis

A convergence of the 21-DMA and 50-DMA, near 6.9040-30, restricts the immediate downside of the USD/CNH pair. It’s worth noting, however, that the downbeat oscillators keep favoring the sellers.