USD/CNY: Signs of stabilization - UOB
|Peter Chia, Senior FX Strategist at UOB, point out that the USD/CNY pair is offering signs of stabilization after the sharp selloff seen in early January. They see the pair moving higher over 2019.
Key Quotes:
“The current momentum of the trade talks points to a limited trade deal by the end of the 90-day trade truce period, rather than a comprehensive solution to the structural issues between US and China. The CNY has strengthened across the first few weeks of the year in anticipation of a possible trade deal. As a result, spot USD/CNY has fallen from 6.88 on 2 Jan to 6.74 on 11 Jan.”
“We think recent gains in the CNY are excessive with respect to the fundamentals. We are probably in early stages of a base in USD/CNY after the sharp sell-off in early January. Unless there is a breakthrough after Chinese Vice-Premier Liu He’s visit to Washington DC next week (30-31 Jan), trading in CNY is likely to quiet down leading to the Lunar New Year holiday in early February. Onshore markets will be closed for a week starting 4-Feb and only reopen on 11-Feb.”
“We reiterate our measured trajectory of USD/CNY above 7.00 in 2019, with point forecasts at 6.95 at 1Q19, 7.00 at 2Q19, 7.10 at 3Q and 4Q19. Thus, one may find current spot levels and forward points attractive in hedging for further USD upside.”
“The sharp and swift decline in USD/CNY that started earlier this year hit a low of 6.7337 last Monday (14 Jan). Since then, downward momentum has decelerated rapidly and this coupled with severely oversold condition suggests the 6.7337 low is likely a short-term bottom. The current price action is viewed as the early stages of a consolidation phase. For the next 1 to 2 weeks, USD/CNY is expected to trade sideways to slightly higher, likely within a broad 6.7450-6.8400 range.”
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