A long USD against the yuan recommendation from a weekly note from Danske
- We buy USD/CNH with a target of 7.3850, and a S/L at 6.9520
In brief, reasoning:
- US-China trade deal was dead from the outset, but no one had an incentive to reveal it until after the US election.
- Corona virus has offered the Trump administration an opportunistic chance to opt for China bashing instead
- We would be surprised if the PBoC didn't allow USD/CNY to slowly but surely pave its way higher towards November, given the crystal-clear risk of a re-escalation of the tariffs war and continued issues of re-booting credit growth in China. More PBoC easing and more exported disinflation coming up.
- Higher USD/CNY likely also goes hand in hand with a weaker risk appetite than what we have seen during March and parts of April.
I posted last week to expect the yuan to continue relatively stable into and through the meetings. Following the meetings though the yuan is likely to succumb to further downward pressure.
