USD/CNH Bulls Aim To Reclaim 7.22000 Mark On Slightly Stronger U.S. Dollar
Key Takeaways:
- USD/CNH pair rose back above the 7.21400 mark on Friday during the Asian session, despite an earlier dip
- Fresh U.S. dollar buying was a key factor that helped limit further losses around the USD/CNH cross.
- Deflationary risks weighing on China act as a headwind to the Chinese Yuan (CNH)
The USD/CNH pair struggles to capitalize on the overnight bounce from late-7.2100 levels and attracts fresh buying on the last day of the week. The pair, however, dropped to a fresh daily low/7.21076 before paring losses and moving slightly higher to trade with modest gains just above 7.21400s. The attention now shifts toward reclaiming the 7.22000 mark heading into the mid-Asian session.
A modest resurgence in U.S. dollar demand witnessed earlier today is a key factor that helped limit further losses around the USD/CNH cross. This comes after investors scaled back their bets on the timing of interest rate cuts in the wake of fresh, robust U.S. jobs data, which helped overshadow uncertainty about the outlook for monetary policy poised by the recent commentary by Fed officials.
A U.S. Department of Labor report released on Thursday showed the number of people claiming unemployment benefits in the U.S. fell by 9,000 to 218,000 from the prior week's upwardly revised value in the February 2nd report, slightly below estimates of 220,000 but remaining firmly above the average from the last two months. In the meantime, continuing claims eased by 23,000 to 1,871,000 in the last week of January.
The resilient jobs data joins the NFP data released earlier this month in underscoring the historical tightness of the U.S. labor market, adding leeway for the Federal Reserve to prolong its hawkish stance into the second quarter, if necessary, to lower inflation.
That said, further acting as a tailwind to the USD/CNH cross is the fresh batch of disappointing Chinese macro data released on Thursday, which showed China's consumer and producer prices declined in January, underscoring deflation risks facing the world's second-largest economy. China's consumer prices fell by 0.8% yoy in January 2024, the most in more than 14 years and worse than market forecasts of a 0.5% fall, a National Bureau of Statistics of China report showed. The CPI rose by 0.3% monthly, indicating the second straight month of increase and hitting its highest since last August. In 2023, consumer prices rose by 0.2%. In contrast, China's producer prices fell by 2.5% in January 2024, after a 2.7% drop in the prior month, compared with market estimates of a 2.6% decline.
As we advance, without any significant market-moving economic news data, the Treasury bond yields and the general market risk sentiment will continue to influence U.S. dollar dynamics and ultimately provide directional impetus to the USD/CNH cross. The main focus, however, remains on next week's release of U.S. consumer inflation figures, which might influence the Fed's future policy decision.
Technical Outlook: Four-Hour USD/CNH Price Chart
From a technical standpoint, the USD/CNH pair has been trading within an ascending channel for the last three weeks and is currently placed just above the 7.21400 mark. To confirm the continuation of the bullish uptick, Bulls need to find acceptance above the 7.21991 level, which acts as an initial barrier. Further resistance is seen at 7.22970 (R1), followed by 7.24514 (R2), before which the price could aim to retest the key resistance level (upper limit of the ascending channel). A clean break above this level would affirm the bullish and pave the way for additional gains around the USD/CNH cross.
On the flip side, if sellers resurface and spark a bearish turnaround, initial support comes in at 7.20120 (P). A convincing move below this level, followed by a break below the lower limit of the ascending channel (bearish price breakout), could see downside momentum pick up pace, paving the way for a drop to tag the technically strong 200-day (brown) Exponential Moving Average at 7.18931. Acceptance below this level would negate the near-term bullish outlook and pave the way for dip losses around the USD/CNH pair. The USD/CNH cross could then accelerate the drop below the immediate support level at 7.18593 (S1) toward the next support level at 7.15767.
