USD/CNH is struggling to hold key trendline support despite soft China official PMIs

• The CNH (offshore yuan exchange rate) is recovering early losses, despite dismal China official PMI readings.
• The USD/CNH is threatening a daily close below the trendline connecting the Aug. 27 and Sept.21 lows.

The USD/CNH is currently trading at 6.9367, having clocked a session high of 6.9438 earlier today.

The offshore yuan exchange rate fell earlier today after China's official purchasing managers' index (PMI) showed the factory growth unexpectedly stalled in November. The PMI fell to 50.0 in November -  a neutral level, which indicates neither growth in activity nor contraction. Notably, analysts were expecting the PMI to print at 50.2.

The data indicate the ongoing trade war with the US is indeed having a negative impact on the world's second-largest economy. As a result, Beijing may feel pressured to roll out more stimulus.

The rise to a session high of 6.9438, however, was short-lived, possibly due to Fed minutes, which underpinned expectations that the current tightening cycle is nearing an end.

Notably, the pair is threatening to close below the rising trendline support, which reversed pullbacks in October and earlier this month. The ascending trendline breakdown, if confirmed, would validate the bearish divergence of the 14-week relative strength index (RSI) and open the doors to a deeper sell-off.

The breakdown, however, may trap the bears on the wrong side of the market if Trump-Xi meeting fails to produce at least a pause in the trade war.

USD/CNH Technical Levels