USD/CNH remains firmer past 6.9600 amid cautious mood, mixed China data

• USD/CNH picks up bids to reverse week-start pullback from two-month high.
• China Industrial Production, Retail Sales remain below market expectations but stay below previous readings.
• US Dollar pauses retreat from five-week top amid market’s anxiety ahead of the key data/events.
• US Retail Sales, debt ceiling talks eyed for clear directions.

USD/CNH takes the bids to refresh intraday high near 6.9690 during early Tuesday, reversing the previous day’s pullback from a two-month high after China’s headline data failed to impress the offshore China Yuan (CNH) buyers. Also fueling the USD/CNH buyers could be the mixed sentiment and the US Dollar’s pause in the previous retreat.

China Industrial Production grew 5.9% for April versus 10.9% expected and 3.9% prior whereas the Retail Sales rose 18.4% YoY from 10.6% prior and 21.0% market forecasts.

Also read: China’s April Retail Sales rise 18.4%, Industrial Output increases 5.6%

Apart from the China data, USD/CNH also bears the burden of the previous day’s mixed updates from the People’s Bank of China (PBOC). That said, the People's Bank of China’s mixed updates underpins the USD/CNH pair’s upside. That said, PBOC keeps the one-year Medium-term Lending Facility (MLF) rates unchanged at 2.75%, per the latest update. Additionally, the Chinese central bank also released its quarterly economic report stating that China's economy isn’t experiencing deflation and that economic growth is set to rebound sharply.

Elsewhere, the White House announced a meeting between President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy to overcome the looming US default. Ahead of the event, the US policymakers appear somewhat optimistic about extending the debt ceiling limit before the June expiry.

However, the latest comments from United States House Speaker Kevin McCarthy saying, “I don’t think we’re in a good place,” also seem to weigh on the Gold price, via fears of deadlock on the US debt ceiling extension as Republicans may stick to their demand.

Against this backdrop, S&P 500 Futures print mild losses even as Wall Street closed positive and the yields remain pressured, which in turn shows the market’s indecision and awaits the important data/events for clear directions.

As a result, today’s US policymakers’ negotiations to avoid the US default and the US Retail Sales for April will be eyed closely for clear directions. Should the US policymakers offer a positive surprise to the markets, the odds of witnessing a slump in the US Dollar can’t be ruled out. On the same line are the downbeat US Retail Sales for April, expected at 0.7% MoM versus -0.6% prior.

Technical analysis

A six-week-old rising wedge bearish chart formation joins nearly overbought RSI (14) to tease USD/CNH bears. However, a clear downside break of 6.9360 support becomes necessary for the offshore Chinese Yuan bears to keep the reins.