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Former PBOC official says China should not allow yuan weaker than 7

  
Analysis, Forex

Former People’s Bank of China official Sheng Songcheng

Writing a piece in China Business News.
  • says the yuan falling through 7 may shake the confidence of markets
  • increase pressures on capital outflows
  • devaluing the yuan has only a small positive impact on trade
—
Not dropping under 7 is a popular view. Not there yet anyway.
USD/CNY was set at 6.8988 today by the PBOC.
CNY has been weak.
Meanwhile USD/CNH (CNH is the offshore)
Former People's Bank of China official Sheng Songcheng

Weekend China press hints at currency intervention

  
Analysis, Forex

The Global Times, admittedly a fairly strident sort of source ….

But the concerns they express on the impact of a rapidly falling yuan are those we’ve been aware of and highlighting since the trade war took a turn for the worse in the recent week or so.
The piece is titled: Defending exchange rate China’s top priority
Begins with some background (do note this is from China’s perspective):
  • US-China trade talks haven’t broken down
  • negotiations appear to have ground to a halt 
  • there remain three core concerns of China that must be addressed. The first is to remove all the additional tariffs, which must be totally revoked if the two sides are to reach a deal. The second is that the amount of purchases should be realistic. The two sides reached consensus on the volume in Argentina and should not change it spontaneously. The third is to improve the balance of the wording of the text. Every country has its dignity, and the text must be balanced.
And goes on (bolding mine … to add to the stridency 😀 ):
  • The biggest challenge facing China in the future comes from the exchange rate problem, and it is necessary to be prepared for the upcoming war defending the yuan exchange rate. 
  • It can even be said that no other problems are important compared with the exchange rate issue.
  • The most worrying issue is the yuan exchange rate. Once the yuan continues its depreciation against the dollar, it will trigger a series of chain reactions. Currency depreciation leads to asset price drops, which prompts capital flight overseas. Intensified capital flight will continue to weaken the yuan, which inevitably dents China’s foreign reserves. If such a vicious cycle takes shape, it will have a broad impact on China’s financial market, asset market and real economy.
Full article is here from the weekend
Offshore yuan:
offshore yuan cnh chart china trade war

CFTC Commitments of Traders: JPY shorts trimmed by 30K

  
Analysis, Forex

Weekly Forex futures met noncommercial positioning data for the week ending May 14, 2019

  • EUR short 95K vs 106K short last week. Shorts trimmed of my 11 K
  • GBP short 3K vs 7K short last week. Shorts trimmed by 4K
  • JPY short 62K vs 92K short last week. Shorts trimmed by 30K
  • CHF short 40k vs 40k short last week. unchanged
  • AUD short 64k vs 57k short last week. Shorts increased by 7K
  • NZD short 11K vs 13K short last week. Shorts trimmed by 2K
  • CAD short 48K vs 46K short last week.  Shorts increased by 2K
  • Prior report
Dollar longs were trimmed in the current commitment of traders report with declines in JPY and to a lesser extent EUR leading the way. The JPY short position (USD long position) was trimmed by 30K.  The EUR short (dollar long) was trimmed by 11K but remains relatively high at short 95K. The only short increase was in the AUD. The RBA is expected to mull a cut in rates at their next meeting in a few weeks.
The JPY shorts were trimmed in the current week by 30K

China onshore weakens again today. USD/CNY above 6.9

  
Analysis, Forex

7 is thought to be a bit of a line in the sand. Not there quite yet but not far away at the pace CNY is losing ground:

7 is thought to be a bit of a line in the sand. Not there quite yet but not far away at the pace CNY is losing ground:
The PBOC has been allowing the yuan to fall. The view is the currency is not being ‘weaponised’ (i.e falling to make Chinese goods cheaper in the face of increasing tariffs).
To pop my tin hat on for a moment – that’s what China would love us to think though.
The argument supporting the PBOC not wanting it fall too far is that it will encourage capital outflow, which the PBOC is trying to keep under control.

USDJPY makes a break toward topside targets

  
Analysis, Forex

USDJPY breaks above its 100 hour MA and trend line

The USDJPY has made a break above its 100 hour MA at 109.559 (blue line) and a trend line on the hourly chart near the same level. That is a bullish play. Staying above the level keeps the bullls in charge (it is risk for longs as well).
USDJPY breaks above its 100 hour MA and trend line
The run higher has stalled so far in the swing area defined by the highs this week at 108.769 to 109.825.  The high today reached 109.795 so far – between that swing area.  A move above that area will have the 200 hour MA at 10988 and then the 38.2% and the swing highs from May 10 at 110.01-045 to get above. So there are some resistance land mines to get above, but breaks above would help to turn the beat around if down.
So bulls are trying to take more charge on the breaks today, but there is work to be done.  Look for dips toward the 100 hour MA to find buyers (with stops on a break below).

Huawei says that US restrictions will put the country behind on 5G deployment

  
Analysis, Forex

The firm comments in a statement about US’ executive order overnight

Huawei
  • Will engage with US government regarding product security
  • Willing to come up with effective measures to ensure that
  • Committed to foster ‘close relationships’ with European countries and carriers
Trump has urged his European counterparts to also ban Huawei from its markets but they haven’t done so as of yet. With US-China trade tensions already skating on thin ice, the situation regarding Huawei – should it escalate much more – could just be the tipping point that results in things breaking down.
And even if it doesn’t, it will no doubt add to the weight of tensions we’re seeing between both countries at the moment.
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