USD/CNH sellers attack 7.1200 as China’s return matches US holiday, inflation data in focus

• USD/CNH snaps three-day uptrend amid a sluggish start to the key week.
• China returns to the market after a one-week holiday but US enjoys Columbus Day off.
• Risk-aversion, hawkish Fed bets underpin US dollar ahead of FOMC Minutes, US CPI.
• China’s Caixin Services PMI marked the first contraction since May but PBOC moves probe the pair buyers.

USD/CNH takes offers to renew the intraday low near 7.1180 as markets in Beijing open after a week-long holiday period on Monday. In doing so, the offshore Chinese yuan (CNH) pair prints the first daily loss while consolidating the recent upside momentum amid the off in the US, Japan and Canada.

In addition to the market’s paring of recent moves during the sluggish start, upbeat news from China also contributed to the USD/CNH pair’s pullback.

That said, mainland China reported zero covid cases for the second day in a row. Further, the People’s Bank of China’s (PBOC) lower USD/CNY fix of 7.0992, versus the market’s expectations of 7.1215 and the 7.1211 previous close, also exerts downside pressure on the USD/CNH prices.

Alternatively, China’s Caixin Services PMI for September dropped to 49.3 from 55.0 prior, marking the first contraction since May, during the weekend.

On the same line is the market’s rush for risk safety amid the hawkish Fed bets and the fears of recession. That said, the CME’s FedWatch tool signals the 78% chance for the US central bank’s 75 bps rate hike in November.

The hawkish Fed bets got a boost on Friday after that the headline Nonfarm Payrolls (NFP) rose to 265K versus the 250K expected. Also portraying the strength of the US employment conditions was an unexpected fall in the Unemployment Rate to 3.5% compared to forecasts suggesting no change in the 3.7% prior.

It should be noted, however, that the market chatters about the recession woes could probe the hawkish central banks seem to challenge the USD/CNH bulls of late.

Amid these plays, the S&P 500 Futures dropped for the fourth consecutive day while poking the monthly low near 3,630, down 0.40% intraday at the latest. That said, the US 10- Treasury yields rose for eight consecutive weeks in the last before pausing around 3.90%.

Looking forward, Consumer Price Index (CPI) data from the US and China, up for publishing on Thursday and Friday respectively, will be crucial for the USD/CNH pair traders to watch for clear directions. However, the bulls are likely to keep reins as the Federal Open Market Committee (FOMC) Minutes may unveil the hawkish hopes of the policymakers.

Technical analysis

Unless breaking a two-month-old ascending support line, at 7.0650 by the press time, USD/CNH bulls remain hopeful.