USD/CNH turns indecisive ahead of PBOC rate decision

USD/CNH is lacking a clear directional bias on Wednesday, as traders await the all-important rate decision by the People's Bank of China (PBOC). 

The pair carved out a doji candle on Tuesday, which occurs when the currency pair sees two-way business and ends a specific period on a flat note. The doji candle is widely considered a sign of indecision in the market place. 

Stronger selling pressure may emerge if the spot prints a close below the doji candle's low of 7.1087 on Wednesday, confirming the reversal lower signaled by the long upper wick attached to Monday's red candle. 

Alternatively, a close above the doji candle's high 7.1266 would mean the period of indecision has ended in victory for the bulls and could yield a fresh move higher toward 7.16487 (March 19 high). 

The direction of the close could be influenced by the PBOC rate decision scheduled at 01:30 GMT. Thirty-four respondents or 73.9% of participants in the Reuters survey expected no change to the one-year loan prime rate (LPR) or the five-year tenor in its monthly fixing on Wednesday. 

The Offshore Yuan or CNH will likely come under pressure if the central bank delivers a rate cut. The odds, however, are low, as the PBOC would likely to preserve rate cuts to counter a deeper slowdown in the activity, if any, in the future. The US has recently accused China of intentionally spreading the virus and threatened retaliation in the form of tariffs. 

In April, China cut the loan prime rate by 20 basis points to 3.85% from 4.05% previously, and the five-year LPR by 10 basis points to 4.65% from 4.75%.

Technical levels