USD/CNH renews two-year top above 7.0200 despite strong China statistics

• USD/CNH remains firmer near the highest levels since July 2020, retreats from top of late.
• China’s August month Industrial Production, Retail Sales and housing data came in firmer.
• Pullback in the US Treasury yields seems to test the buyers amid a sluggish session.
• Second-tier US numbers eyed ahead of the next week’s FOMC.

USD/CNH bulls keep reins around the highest levels in 26 months, despite the latest pullback from the multi-day top, as hawkish Fed bets supersede China’s upbeat data during Friday’s Asian session.

China’s Industrial Production rose 4.2% YoY versus 3.8% expected and prior while Retail Sales rose past 3.5% market expectations and 2.7% prior to 5.4%. Further, Reuters said, “China's new home prices fell in August at the fastest pace since November 2021 as its property sector was plagued by weak demand, a mortgage boycott and strict COVID-19 restrictions.” That said, the consolidation of the US Treasury yields and the sluggish session also seems to challenge the USD/CNH buyers around the two-year top.

However, the latest readings of the hawkish Fed bets from the CME’s FedWatch Tool suggest the market priced in the Fed’s 0.75% and 1.0% rate hikes during the next week’s Fed meeting with 77% and 23% chances.

Other than the hawkish Fed bets, the risk-negative headlines surrounding China and Europe also propel the USD/CNH prices. That said, Reuters came out with the news stating that US President Joe Biden to hit China with broader curbs on US chip and tool exports. Previously, Bloomberg ran a piece suggesting that China is likely to witness harder days than it witnessed in 2020. On the same line was the news surrounding the Sino-American tussles and the People’s Bank of China’s (PBOC) inaction. Elsewhere, fears that the Eurozone will remain in dire conditions despite having a good stock for winter joined hawkish comments from the European Central Bank (ECB) policymakers to keep the oil traders as pessimists.

Amid these plays, S&P 500 Futures track Wall Street’s losses while the prices of oil and gold improve while the US Dollar Index (DXY) retreats to 109.60.

Looking forward, preliminary readings of the Michigan Consumer Sentiment Index (CSI), expected 60 versus 58.2 prior, will be crucial for intraday directions. Also important to watch will be the chatters surrounding China and Europe. However, major attention will be on the next week’s Fed meeting.

Technical analysis

USD/CNH is well on the way to 7.0370-400 resistance zone, comprising the lows marked during April and June 2020, unless it drops back below the previous weekly top near 6.9970.