USD/CNH bounces from five-week lows

USD/CNH rises as US-China trade tensions persist, S&P 500 futures erase gains.
Risk reversals hit three-month lows, indicating a weakening of demand for USD/CNH calls.

USD/CNH is flashing green in Asia seemingly due to lingering trade tensions.

The currency pair is currently trading at 7.0829, representing a 0.5% gain on the day, having hit a low of 7..0646 on Friday. That level was last observed on April 30.

The offshore Yuan is being offered, possibly in response to comments by a former Chinese trade official that the dragon nation is unlikely to roll back or reduce tariffs imposed on lobsters imported from the US. On Friday, President Trump threatened to impose tariffs on unspecified Chinese products and cars from Europe unless the trading partners reduce their duties on US lobsters.

Additional upward pressure could be emanating from the broad-based recovery in the US dollar. The greenback has taken back a majority of its early losses, possibly tracking the pullback in the S&P 500 futures. At press time, the futures are trading largely unchanged on the day as opposed to the 0.5% gain seen in early Asia.

Looking forward, USD/CNH could reverse gains, as global equity markets are likely to remain better bid, keeping the dollar under pressure due to renewed speculation about a V-shaped economic recovery in the US. Friday's US Nonfarm Payrolls report showed the economy added 2.5 million jobs in May, pushing the unemployment rate lower to 13.3% and beating the expected decline of around 8 million by a big margin.

Also, the options market looks to be anticipating a deeper decline in USD/CNH. One-month risk reversals, a gauge of calls to puts, has declined to a three-month low of 0.162, meaning the demand for call options or bullish bets is at the weakest since early March. The metric was hovering at highs above 1.5 about two weeks ago.

Technical levels

1. R3 7.1534
2. R2 7.1355
3. R1 7.1034
PP 7.0855
1. S1 7.0534
2. S2 7.0355
3. S3 7.0034

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.