USD/CNH retreats from yearly top towards 1.0700 on China FX intervention, US Dollar positioning for data

• USD/CNH takes offers to refresh intraday low while reversing from the highest levels since December 2022.
• China’s state banks allegedly selling US Dollar in onshore FX markets to defend Yuan.
• Market’s consolidation ahead of the US data, events join fears of more PBOC intervention to weigh on USD/CNH price.

USD/CNH renews its intraday low near 7.0740 early Friday in Europe amid concerns surrounding China’s Forex market intervention. Adding strength to the pullback move is the US Dollar’s retreat from a multi-day high as traders brace for the key data/events.

Reuters quotes anonymous sources to state in its latest piece that China's state banks are seen selling dollars in the onshore FX market. “Such dollar selling appeared to slow the pace of yuan declines, one of the five sources said, as big banks have not forcefully capped the currency at any particular levels.” adds the news. The piece also states that big banks emerged to offer dollars as "The offshore Yuan (CNY) was close to the 7.1 per dollar this morning," per the second source.

On the other hand, the US Dollar Index (DXY) retreats from a 2.5-month high to 104.17 by the press time as US policymakers’ inability to clinch a deal on the US debt ceiling extension contrasts with the chatters suggesting a $70.0 billion gap left to be filled by the negotiators to get the much-awaited deal. Recently, US House Speaker Kevin McCarthy announced no agreement on the debt deal, as well as the continuation of talks by saying, “It’s hard. But we’re working and we’re going to continue to work until we get this done.”

Also allowing the greenback buyers to take a breather are repeated warning signs from the US Treasury Department about witnessing harsh economic results of a debt payment default. On the same line could be mixed comments from the Fed policymakers as Richmond Fed President Thomas Barkin said on Thursday, “Fed is in a test and learn situation to determine how slowing demand lowers inflation.” Further, Boston Federal Reserve President Susan Collins said on Thursday that the Fed "may be at or near" the time to pause interest rate increases, as reported by Reuters.

However, upbeat US data underpins hawkish Fed bets and weigh on the market sentiment. On Thursday, the second estimation of the US Annualized Gross Domestic Product (GDP) for Q1 2023 was revised up to 1.3% versus 1.0% first forecasts. Further, the Chicago Fed National Activity Index for April improved to 0.07 from -0.37 prior and -0.02 market estimations. On the same line, Kansad Fed Manufacturing Activity improved to -2 for May compared to -21 previous readings and analysts’ estimations of -11. It’s worth noting that the US Pending Home Sales for April improved on YoY but eased on MoM whereas Core Personal Consumption Expenditures also rose to 5.0% during the preliminary readings versus 4.9% prior.

Amid these plays, market sentiment dwindles and allows traders to brace for the key data including the US Durable Goods Orders for April and the Core Personal Consumption Expenditure (PCE) Price Index for the said month, known as the Fed’s preferred inflation gauge.

Technical analysis

Although the overbought RSI (14) line challenges USD/CNH buyers, the pair remains off the bear’s desk unless posting a daily close below the latest 2022 peak of around 7.0155.