USD/CNH marches beyond 7.2700 on mixed China PMI, US PCE Inflation eyed

• USD/CNH grinds higher around the yearly top after mixed China official PMIs for June.
• China NBS Manufacturing PMI matches upbeat forecasts but stays below 50.0, Non-Manufacturing PMI improves.
• PBoC keeps defending Yuan but fails so far amid hawkish Fed talks, upbeat US data.
• Fed’s preferred inflation gauge, headlines surrounding US-China ties eyed for intraday directions.

USD/CNH picks up bids to print mild gains around the yearly top marked the previous day as China’s headline PMIs flash mixed outcome for June on early Friday. With this, the offshore Chinese Yuan (CNH) pair remains firmer for the third consecutive day to around 7.2720 by the press time.

China’s headline NBS Manufacturing PMI matches 49.0 market forecasts in June versus 48.8 expected while the Non-Manufacturing PMI rose past 50.2 analysts’ estimations to 53.2, compared to 54.5 previous readings, during the said month.

Apart from the PMIs, the USD/CNH pair also justifies the market’s lack of confidence in the People’s Bank of China’s (PBoC) defense of the onshore Chinese Yuan (CNY) via daily fix and open market operations.  That said, the PBoC keeps fueling USD/CNY fix, making it the highest since November 2022 at the latest.

On the contrary, hawkish Federal Reserve (Fed) comments and upbeat US data keeps the US Dollar firmer.

Fed Chair Jerome Powell spoke at the Fourth Conference on Financial Stability hosted by the Bank of Spain, in Madrid, while saying, “A strong majority of Fed policymakers expect two or more rate hikes by year-end.” Additionally, Atlanta Federal Reserve President Raphael Bostic told reporters regarding future rate increases, as reported by Reuters, that he doesn’t see as much urgency to move as stated by others, including Chairman Jerome Powell. The policymaker, however, recently took a U-turn while saying, “I think it's unambiguous that inflation has fallen considerably."

On Thursday, the US Gross Domestic Product (GDP) Annualized, mostly known as the Real GDP, grew at the 2.0% rate for the first quarter (Q1) of 2023 versus the 1.3% initial estimation. Further, the US Weekly Initial Jobless Claims slumped to 239K for the week ended on June 23 compared to 265K expected and revised prior. However, the Personal Consumption Expenditure (PCE) Price for Q1 2023 eased to 4.1% QoQ from 4.2% expected and prior whereas the Pending Home Sales slumped to -2.7% MoM for May compared to 0.2% expected and -0.4% prior (revised).

On a different page, mixed headlines about the US-China ties also propel the USD/CNH price as US Treasury Secretary Janet Yellen ‘hopes’ to visit China to re-establish contacts but also showed readiness to take actions to protect national security interests even at an economic cost.

While portraying the mood, Wall Street closed positive but the US 10-year and two-year Treasury bond yields also rallied while the US Dollar Index (DXY) refreshed its weekly top before retreating to 103.40. It should be noted that the S&P500 Futures print mild gains by the press time.

Having witnessed the initial market reaction to China’s official activity data for June, the USD/CNH pair traders will concentrate on the risk catalysts ahead of the Federal Reserve’s (Fed) favorite inflation gauge, namely the US Core Personal Consumption Expenditure (PCE) Price Index, for May for clear directions. Also important to watch will be the news concerning the US-China ties amid the latest geopolitical jitters.

Technical analysis

Rising wedge at multi-month top challenges USD/CNH bulls unless the quote defies the bearish chart formation by crossing the 7.2800 hurdle. That said, a downside break of the 7.2400 support will confirm the wedge pattern suggesting the downturn for theoretical target of 7.0670.