USD/CNH bulls aim for 7.000 threshold on downbeat China trade data, Fedspeak eyed

• USD/CNH renews two-year low amid softer China trade numbers, risk-off mood.
• Increasing fears of PBOC intervention, rising yields and covid woes also underpin bullish bias.
• Fedspeak appears important catalyst amid increasing hawkish bets on September rate hike.

USD/CNH prints a five-day uptrend as it rises to the fresh high since August 2020 after Chinese trade numbers favored the pair bulls during early Wednesday. Also favoring the upside momentum are the risk-aversion and hawkish Fed bets that underpin the US dollar’s strength.

“China's exports growth weakened in August, as surging inflation crippled overseas demand and fresh COVID curbs and heatwaves disrupted production, reviving downside risks for the economy,” per Reuters. The news also mentioned that the exports rose 7.1% in August from a year earlier, slowing from an 18.0% gain in July, official customs data showed on Wednesday. The reading missed analysts' expectations for a 12.8% increase.

Despite the recent easing in the covid-led lockdowns, China continues to suffer in picking up the economic transition, which in turn pushed the People’s Bank of China (PBOC) to recently cut the Reserve Ratio Requirements (RRR). “Traders and analysts said the central bank's persistent firmer-than-expected midpoint fixings could be an attempt to prevent the local currency from quickly breaching the key threshold,” Reuters also said in this regard.

On the other hand, US ISM Services PMI rose to 56.9 versus 55.1 market forecast and 56.7 prior. However, the S&P Global Composite PMI and Services PMI eased to 44.6 and 43.7 respectively versus 45.0 and 44.1 initial forecasts in that order. Even so, the US Dollar Index (DXY) rose after the release and refreshed a 20-year high. It should be noted that the CME’s FedWatch Tool signals 72.0% chance of 50 basis points (bps) Fed rate hike in September versus 57% one-day ago.

While portraying the mood, the US 10-year Treasury yields rise to a fresh high since June 15 during the three-day uptrend to 3.35%. Also portraying the risk-aversion is the S&P 500 Futures that drops to the fresh low in seven weeks, down 0.55% intraday around 3,890 at the latest.

Moving on, the monthly prints of the US trade balance and Fed Beige Book updates could entertain USD/CNH traders. However, major attention will be given to the various Fed speakers scheduled for public appearances in the next two days, including Fed Chairman Jerome Powell.

Technical analysis

A sustained upside break of the monthly resistance line, now support around 6.9820, direct USD/CNH prices towards the 7.000 threshold, as well as the July 2020 peak surrounding 7.030.