USD/CNH slides beneath 6.9500 to defy monthly bullish channel despite softer China inflation

• USD/CNH remains pressured around intraday low after breaking bullish chart formation.
• Bearish MACD signals favor sellers but 50-SMA tests downside towards 13-day-old support.
• Buyers need to cross 6.9630 to retake control, light calendar could limit the moves.

USD/CNH rejects the bullish channel while taking offers of around 6.9450 during Friday’s Asian session. In doing so, the USD/CNH cheers broad USD weakness while paying little heed to China's inflation data.

China’s Consumer Price Index (CPI) and Producer Price Index (PPI) both print unwelcome numbers for August. That said, the headline CPI eased to 2.5% YoY versus 2.8% market forecasts and 2.7% prior while the PPI dropped to 2.3% compared to 3.1% expected and 4.2% prior. On the other hand, the risk-on mood weighs on the US Dollar Index (DXY), down 0.55% intraday near 109.00 by the press time.

Comments from US Treasury Secretary Janet Yellen, signaling likely positive change in the US-China trade ties, seemed to have helped the market sentiment of late. Recently firmer US data and hopes that the global central bankers will be able to overcome inflation-led blow with a holistic approach and higher rates also seemed to have favored the market’s mood. On the contrary, the Wall Street Journal’s (WSJ) piece challenges the optimism a bit by suggesting further hardships for China’s technology companies.

US Treasury Secretary Yellen raised hopes for softer inflation and US President Biden’s consideration to remove some tariffs on China. Talking about data, after recently firmer ISM PMIs and Goods Trade Balance, the US Weekly Initial Jobless Claims slumped to the lowest levels since May, with the latest figures beyond 222K.

On Thursday, the European Central Bank (ECB) matched the market’s expectations by announcing a 75 basis point (bps) increase in the key rates while Fed Chairman Jerome Powell said that they need to act forthrightly and strongly on inflation, as reported by Reuters.

Amid these plays, the US 10-year Treasury yields remain sidelined near 3.32%, after a positive day, whereas the S&P 500 Futures traces Wall Street’s gains around 4,020. At home, firmer commodity prices favor the benchmark S&P/ASX200 index to print mild gains.

Also favoring USD/CNH bears is the headline from Bloomberg suggesting no rate cut from the People’s Bank of China (PBOC) during the next week. “China’s efforts to stem the yuan’s weakness are spurring bets that it may refrain from boosting liquidity in the banking system in the near term, even as Covid lockdowns and a property slowdown undermine its growth prospects,” said Bloomberg.

Moving on, a light calendar could restrict short-term USD/CNH moves ahead of the next week’s US Inflation data. However, the last round of the Fedspeak before the blackout period may entertain the pair traders.

Technical analysis

USD/CNH bears need to conquer the 50-SMA support near 6.9365 to justify the bearish break.

Given the MACD signals and a three-day-old resistance line, around 6.9630 by the press time, the quote is likely to break the immediate support, which in turn could direct the USD/CNH sellers towards a horizontal area including multiple levels marked since August 23 near 6.8850-80.

Alternatively, recovery moves need to cross the 6.963 hurdle to refresh two-year high marked earlier in the week near 6.9970. In doing so, the stated channel’s resistance line near 7.0120 will be in focus.

USD/CNH: Four-hour chart

Trend: Further weakness expected