USD/CNH: Yuan drops as trade deal uncertainties rise

China's offshore Yuan (CNH) is losing ground in Asia, possibly on fading trade optimism.  

A US-China trade deal is unlikely to happen this year, sources close to the White House told Reuters, sending the CNY lower and the safe havens assets higher. The USD/CNH pair is currently trading at 7.0512, representing a 0.20% gain on the day.

Meanwhile, the anti-risk Japanese Yen is better bid at press time and the USD/JPY pair is down by 0.15%.

Traders fear the political friction between the US and China may complicate matters on the trade front.

The US Senate on Tuesday passed a law aimed at safeguarding human rights in Hong Kong. The move irked China, whose foreign ministry has warned of retaliation. Some observers fear China may retaliate by devaluing Yuan.

It is worth noting that the US tariffs on some $56 billion on Chinese goods are scheduled to take effect on Dec. 15. So, if the deal continues to remain elusive, the CNY sell-off may gather pace. That said, the pair is currently trading well below the high of 7.1956 reached on Sept. 3 and markets are unlikely to worry much about the exchange rate as long as the recent highs are not challenged. 

Technical points

Having established a higher low at 7.00 on Nov. 15, the pair now looks set to test the 50-day average, currently at 7.0710. Supporting the bullish case is the daily RSI's break above 50. Meanwhile, on the downside, the higher low of 7.00, if breached, would weaken the immediate bullish case.

Technical levels