USD/CNH eyes to regain 6.6600 as China’s trade, covid optimism battles downbeat PMI

• USD/CNH extends bounce off monthly low, picks up bids of late.
• China’s Caixin Services PMI drops for the fifth consecutive month, stays below 50 for the third time.
• Beijing eyes faster unlock of covid-led activity controls, US braces for tariff relief to China.
• Risk catalysts, US/China CPI for May appears crucial for fresh impulse.

USD/CNH struggles to justify this weekend’s risk-positive headlines concerning China as the nation’s services activities shrank for the third consecutive month, as per the Caixin Services PMI data published early Monday. In doing so, the offshore Chinese yuan (CNH) pair extends the previous day’s rebound from a one-month low towards 6.6600.

China’s Caixin Services PMI for May drops below 47.3 forecasts to 41.4, versus 36.2 prior. In doing so, the private services activity gauge marked a lesser reading for the fifth time while staying below the 50.00 neutral level, suggesting a contraction in activities.

Alternatively, Beijing’s readiness to ease the virus-led activity controls joins the US preparations for announcing tariff relief for China to underpin cautious optimism in the market.

“Dine-in service in Beijing will resume on Monday, except for the Fengtai district and some parts of the Changping district, the Beijing Daily said. Restaurants and bars have been restricted to takeaway since early May,” reports Reuters. On the other hand, US Commerce Secretary Gina Raimondo said, per Reuters, “President Joe Biden has asked his team to look at the option of lifting some tariffs on China that were put into place by former President Donald Trump, to combat the current high inflation.”

It’s worth noting that a surprise uptick in Friday’s US Nonfarm Payrolls (NFP) and hawkish Fedspeak has already propelled the odds of a third 50 bps rate hike in September to 75% from 35% appeared last week, which in turn tests the market optimism and favor USD/CNH buyers.

That said, Wall Street benchmarks closed in the red and the US 10-year Treasury yields posted the first weekly gain in three to portray the risk-off mood the previous day. However, the S&P 500 Futures remain mildly bid at around 4,120 but yields fail to extend the gains near 2.95% by the press time.

Moving on, this week’s inflation data for the US and China appears the key for the USD/CNH pair traders as the People’s Bank of China (PBOC) shows readiness for further easing while there are no Fed policymakers up for speeches during this week, due to pre-Fed blackout norm.

Technical analysis

While a five-week-old horizontal support zone restricts short-term USD/CNH downside around 6.6100-6160, weekly resistance line and the 21-DMA, respectively around 6.6780 and 6.7230 in that order, challenge the pair buyers.