USD/CNH stays depressed below $6.38 on firmer China statistics, PBOC moves

• USD/CNH prints three-day downtrend near monthly low, recently off intraday low.
• China Retail Sales, Industrial Production improved, House Price Index eases in October,
• PBOC injects CNY 1.0 trillion via MLF, NBS sounds optimistic on economic recovery.
• Inflation, Evergrande and Fed rate hike are the key catalysts to watch ahead of Tuesday’s US Retail Sales.

USD/CNH remains on the back foot around $6.3770, down for the fourth consecutive day on early Monday. The reason could be linked to upbeat China data and monetary injection from the People’s Bank of China (PBOC).

China Retail Sales rose past 3.5% market forecast and 4.4% prior to 4.9% YoY whereas Industrial Production (IP) jumped to 3.5% versus 3.0% expected and 3.1% prior release. Alternatively, China’s House Price Index for October eased from 3.8% to 3.4% YoY.

Also read: China’s NBS: Economy maintained steady recovery in October

Moving on, the PBOC injected CNY1 trillion via one-year medium-term lending (MLF) as the week starts. The Chinese central bank has been in an active mode ever since the Evergrande saga started. Also pushing the PBOC towards more action is the recent fears of a slowdown in the world’s second-largest economy due to the credit and energy crisis at home.

On the other hand, the US Dollar Index (DXY) extends pullback from a 16-month high amid mildly bid market sentiment and softer Treasury yields. That said, the US 10-year Treasury yields remain depressed around 1.558%, down 2.6 basis points (bps) whereas the S&P 500 Futures print 0.12% intraday gains at the latest.

The softer US Treasury yields and the mildly positive risk appetite could be linked to the receding inflation fears, following Friday’s 10-year low US Michigan Consumer Sentiment as well as talks over US stimulus.

Given the recently positive catalysts from China, as well as risk-on mood, USD/CNH may witness further downside ahead of Tuesday’s US Retail Sales. Should the consumer-centric data renew inflation fears and propel the Fed rate hike concerns, USD/CNH bears will be challenged.

Technical analysis

Failures to cross the $6.4100 hurdle, comprising highs marked during early June and late October, keeps USD/CNH bears hopeful of revisiting the yearly bottom around $6.3525. However, a daily closing below a 5.5-month-old support line, around $6.3710 by the press time, becomes necessary.