Originally published by AxiTrader
Quick Recap
The onshore Chinese Yuan rate (USD/CNY) has continued to drift since trade resumed after the golden week holiday's under the weight of a stronger US dollar and what increasingly looks like an opportunistic PBOC which is stealthily weakening the Yuan under cover of US dollar strength.
That's seen the USDCNY hit 6 year highs and its also driven the offshore Yuan rate (USDCNH) back to levels not seen since the devaluation of the Yuan in August 2015.
While we always respect trendlines unless or until they break the release tomorrow of a raft of important Chinese economic data is critical to whether the Yuan continues to cascade lower.
What You Need To Know
The release of last week's Chinese trade data, and the unexpectedly weak print for imports and exports, showed that traders are once again wary of disappointing Chinese data. In no small part that is because Chinese data has defied the doom and gloom merchants by continuing to print relatively strongly over the last 6 months.
That may have breed some complacency amongst traders and investors that China would just keep hitting the numbers. It even saw some upgrades to economic forecasts from big Wall Street firms
Now of course the moves of the Yuan against other currencies also factors into the overall TWI basket equation the PBOC uses to set the currencies level. But in validating the USD/CNH move during golden week after the US dollar strengthened across the board, and with trade a surprise the PBOC has used the data, and the moves in the US to let the USDCNY rate slide to 6 year lows.
This leaves the USDCNH at a critical juncture in the run up to tomorrow's data dump.
Naturally I will recall the McKenna Mantra which is to respect trendlines (and levels) unless or until they break. And it is worth noting that the angle of the most recent rally in the USDCNH is so steep as to almost cry pullback.
So my sense is we'll get strong Q3 GDP tomorrow in the vicinity of the 6.7% year on year rate the market is expecting. Likewise if we get retail sales in the mid 10% region we'll have data which confirms the stability of the Chinese economy.
If the data misses to the downside however the selling we saw in stocks, the Aussie dollar and risk assets in the wake of last week's Chinese trade data is likely to be replicated and the August 2015 high in USDCNH blown away.
Have a great day's trading