It just got a lot more painful to short the yuan

Author: Justin Low | Category: News

USD/CNH longs are being squeezed out

This is the one chart that not many people in the market are talking about. There is a bit of an anomaly taking place today and it is to do with the forward curve in USD/CNH. 1-year forwards have spiked up to 720 points now - looking to be the biggest daily spike since November 2011.

Why does this matter?

The issue here is that we're not seeing such a dramatic move in the USD/CNY 1-year forwards. Hence, access to the onshore yuan remains relatively cheap but for investors who are unable to gain access to the onshore market then they aren't going to have much choice but to deal with the high forward points in the offshore market to cover their short yuan exposure.

The spike above is a telling sign as the trend has been lower forward points (making it cheap to short the yuan through forwards) but if that starts to change, then this could be the start of a turning point for USD/CNH.

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