- USD/CNH extends pullback from weekly top, marks third daily drop in four.
- China’s inflation came in mixed for May, policymakers eye control measures.
- Fear sluggish foreign trade, Sino-American tussles confuse traders.
- Cautious sentiment ahead of Thursday’s key events keeps momentum traders at bay.
USD/CNH consolidates the previous day’s gains while taking offers around 6.3960, down 0.07% intraday, amid early Wednesday. In doing so, the Chinese currency pair seems to cheer the US dollar weakness amid confusing factors from home.
Among them, the mixed plays of headlines inflation data, namely the Consumer Price Index (CPI) and Producer Price Index (PPI), become crucial. That said, the PPI jumped the most since 2008 even as the CPI weakened from the market forecasts in May.
Read: Chinese CPI disappoints, PPI rises at fastest pace since 2008
While noting the surge in the PPI reading, Chinese policymakers signal controls over the foreign trade.
Earlier in the day, the Financial Times (FT) also came out with the news suggesting, “Covid-19 outbreak in southern China is curbing activity at some of the country’s biggest ports, stoking fears that further disruption in international trade risk pushing up the price of its exports.”
Elsewhere, the US Senate passed a bill that is up for escalating the Sino-American tussles via competing for the dragon nation over technology. However, the US Innovation and Competition Act has one more step to cross before reading US President Joe Biden for a sign. On the same line, Biden's infrastructure spending plan is also looming despite the latest notable progress.
Above all, lack of clarity over the Fed’s next moves and mostly upbeat US data keep traders cautious ahead of Thursday’s US CPI and the ECB events. The same weigh on the US Treasury yields and trigger the US dollar’s pullback, not to forget probing any moves of the S&P 500 Futures.
Moving on, USD/CNH may drop further on the People’s Bank of China’s (PBOC) recent policies to curb heavy liquidity, as well as Beijing's early recovery from the pandemic. However, everything depends upon tomorrow's US CPI and the next week’s Fed action.
Technical analysis
Although mid-February lows and 21-day SMA guard short-term upside of USD/CNH, respectively near 6.4000 and 6.4080, bears await a downside break of 10-day SMA level of 6.3845 for fresh entries. Overall, bears keep the reins.
