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USD/CNY remains in 2-month tops near 7.02 ahead of ISM

  • USD/CNY moved higher after Chinese holidays.
  • Wuhan coronavirus fears keep weighing on markets.
  • PBoC injected extra liquidity worth CNY1.2 trillion into the system.

The renewed and sharp sell-off in the Chinese offshore yuan pushed USD/CNY to fresh multi-week highs beyond 7.02 earlier in the session, although easing some ground afterwards.

USD/CNY weaker post-PBoC measures

The pair moved to new 2-month highs after Chinese markets resumed the normal activity following the Lunar New Year festivities on Monday.

In fact, the yuan lost extra ground following the decision by the PBoC to cut the 7-day and 14-day reverse repo rate to 2.44% and 2.55%, respectively. The central bank also pumped an extra CNY 1.2 trillion to support the financial system, all against the backdrop of rising fears on the Wuhan coronavirus and its potential effects on the domestic economy.

Moving forward, the yuan is expected to remain under pressure amidst growing efforts from the government to contain the fast-spreading virus and mitigate the impact on the economy, while investors have already started to price in lower GDP figures during the January-March period.

Later in the week in the Chinese calendar, the Caixin Services PMI is due on Wednesday seconded by Trade Balance figures on Friday.

USD/CNY levels to consider

At the moment the pair is up 1.15% at 7.0158 and faces the next hurdle at 7.0248 (2020 high Feb.3) seconded by 7.0733 (monthly high Dec.4 2019) and then 7.1515 (monthly high Oct.9 2019). On the other hand, a drop below 6.9820 (200-day SMA) would aim for 6.9217 (21-day SMA) and finally 6.8409 (2020 low Jan.20).

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