USD/CNH Hovers In A Range Of 7.30424 – 7.31408 Levels As Investors Cautiously Await For Key Chinese Macro data

Key Takeaways:

• NZD/USD cross-confided in a narrow range as investors cautiously await key Chinese macro data for USD/CNH directional impetus
• Subdued U.S. dollar demand fails to offer support to the Yuan
• A slew of weak Chinese macro data weighs on the Yuan 
• The market focuses on key Chinese macro data set for release on Wednesday and Thursday, respectively

The USD/CNH pair has been oscillating in a narrow range of 7.30424 – 7.31408 since late last week as cautious investors await the release of China's third-quarter gross domestic product (GDP) and the PBoC Loan Prime Rate announcement on Wednesday and Thursday, respectively. That said, the cross met fresh demand on Monday during the early hours of the Asian session after attracting bullish bets to lift spot prices last week's close toward the upper band of the range it has been confided in.

The U.S. Dollar index (DXY), which measures the greenback against a basket of currencies, struggles to gain meaningful traction on Monday and edges lower below the 106.600 mark as the post-US CPI rally seems to have thoroughly dried out. Recent spikes in Treasury yields have prompted various officials to suggest that rates have been raised sufficiently to ease the economy and cool inflation. Philadelphia Federal Reserve President Patrick Harker said earlier Friday that he thinks the central bank can "hold rates where they are."

Further weighing on the buck is the University of Michigan data report released on Friday, which showed consumer sentiment for the U.S. fell to 63 in October 2023 from 68.1 in September, the lowest in five months, and missed market estimates of 67.2, preliminary estimates showed. Despite the combination of negative factors, the current price action suggests market participants are convinced the Fed will hike interest rates before the end of the year.  

This comes on the heels of the hot U.S. consumer and wholesale inflation reports released last week, which showed inflation continues to remain stubborn in the U.S., suggesting the Fed could hike interest rates by at least 25 basis points during the November or December meeting.

Additionally, this comes on the heels of the ongoing war in the Middle East following a surprise attack on Israel by Palestinian militant group Hamas last weekend. In response, Israel launched airstrikes on Gaza and declared war against the Palestinian enclave of Gaza on Sunday. At the time of writing, casualties on both fronts have risen massively. To prevent worsening the situation, the U.N. has now called for the evacuation of 1.1 million residents in north Gaza to move south in the next 24 hours.

That said, further contributing to the sentiment around the USD/CNH cross is the downbeat Chinese macro data released last week, which showed that China's trade surplus in September 2023 narrowed to USD 77.71 billion from USD 82.67 billion in the same period the previous year. Still, it exceeded market forecasts of USD 70 billion as exports and imports declined simultaneously, reflecting persistently weak domestic and international demand.

Apart from this, a National Bureau of Statistics of China report showed China's consumer prices remained unchanged in September 2023 from a year earlier, following a 0.1% rise in the previous month and falling short of the market consensus for a 0.2% gain. The latest data indicated persistent deflationary pressures in the world's second-largest economy, raising concerns about the sustainability of the economic recovery due to sluggish demand. The CPI rose by 0.2% in September every month, compared to the consensus of 0.3%.

That said, to counter the Yuan's weakness, the PBoC has continued to set USD-CNY daily fixings that are much lower than what would be implied by the fixing formula. However, on Monday, the People's Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at 7.1798 as compared to the previous day's fix of 7.1775 and 7.3121, according to a Reuters estimate.

As we advance, investors look forward to a slew of speeches from key top Fed officials that will influence the U.S. dollar price dynamics and provide short-term trading opportunities around the USD/CNH cross. The main focus, however, remains on China's (Q3) GDP report and PBoC Loan Prime Rate announcement, set for release on Wednesday and Thursday, respectively.

Technical Outlook: Four-Hour USD/CNH Price Chart

From a technical standstill using a four-hour price chart, the USD/CNH price has been confined to a narrow range of 7.30424 – 7.31408 levels, with the price currently trading just shy of the upper band of the range. Some follow-through buying would uplift spot prices to the aforementioned barricade (the upper limit of the oscillating range). A convincing move above this level would trigger new buyers to jump in and push the price further upward. The bullish trajectory could then be extended toward the key resistance level plotted by an ascending trendline extending from the early October 2023 swing high. A clean break (bullish price breakout) above this resistance level will reaffirm the bullish thesis and pave the way for an ascent toward the 7.32013 resistance level (R1). In highly bullish cases, the USD/CNH cross could extend a leg toward the 7.33050 resistance level (R2).

On the flip side, the ascending trendline extending from the early-October 2023 swing low now acts as immediate support, below which an about of short-covering has the potential to drag the pair back below the 7.3000 mark toward the 7.29969 support level 1A subsequent move below this level will pave the way for a drop toward the 7.28908 support level (S2). In dire cases, the USD/CNH could accelerate its downfall toward the monthly low at the 7.26878 level.