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USD/CNH: Snaps four-month losing streak

  • USD/CNH registered gains in January - its first monthly gain in five months. 
  • Coronavirus scare likely weighed over Yuan in January. 
  • The focus today is on the Caixin China PMI Manufacturing. 

USD/CNH ended January with 0.47% gains. That was the first monthly gain since August 2019, when the pair had rallied by 3.64%. 

Markets bought the offshore Yuan (CNH) in September and the final quarter of 2019 largely due to the US-China trade optimism. The two nations signaled the highly-anticipated phase one trade deal in January.

The pair picked up a bid last month on Coronavirus scare. In the last three weeks, the number of lab-confirmed cases has soared from about 50 in China to 14,000 in 23 countries, according to The New York Times. 

With fears of a pandemic dominating the market sentiment, the CNH risks extending January losses.

That said, the currency may find takers if the Caixin China Manufacturing PMI, which surveys the small and medium-sized export-oriented units, blows past expectations. 

The NBS (government) PMI released Friday showed the non-manufacturing activity picked up the pace in January, while the manufacturing activity narrowly avoided contraction. The survey, however, was conducted before the coronavirus scare roiled the sentiment. As a result, Bloomberg analysts said the numbers don't reflect reality. 

Technical setup

The pair created a big hammer candle in January, invalidating the bearish technical setup. Acceptance above the hammer candle's high of 7.0069 would confirm a bullish reversal and expose the September high of 7.1959. 

However, if the buyers fail to beat the descending 5-month average at 7.0049, the sellers will likely attack support at 6.90.

Technical levels

 

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