Bearish yuan consensus strong, but charts raise doubt
July 5 (Reuters) -Fundamentally, the bearish outlook for China's yuan is hard to argue against, but the daily USD/CNH chart suggeststraders shouldbe nimble in the event of a deeper technical pullback.
USD/CNH on Thursday broke below 7.2970, the trendline support from May's low, to close at 7.2918. The next floor to watch is the 21-day moving average at 7.2853, which should attract dip-buying. If that fails too, punters wouldbe emboldened to squeeze crowded longs toward 7.2769, the 23.6% Fibonacci retracement of the May-July rally.
Thursday's drop was cued by Treasury yields sliding on weaker U.S. data on Wednesday, a purely dollar-driven move. That means the outlook could easily flip if Friday's non-farm payrolls beat expectations for a slowdown to 190,000 from 272,000 in May.If the data disappoint,a broad USD selloff wouldensue, though hardenedyuan bears could soon surface.
Expect USD/CNH bids to appear near the 55 DMA, currently at 7.2603,if the Fibonaccilevel above is breached. The 55 DMA acted as a springboard twice in June and is likely to be a solid floor again.
Ahead of the U.S. jobs report, China's 30-year treasury bond auction will be monitored for potential shifts in demand, as the central bank looks to conduct bond market smoothing operations. If it succeeds in narrowing the U.S.-China yield gap, that might weaken bids for USD/CNY and USD/CNH.
For more click on FXBUZ
CNH55DMA: https://tmsnrt.rs/4buwGcQ
CN10y: https://tmsnrt.rs/3Wa0TJE
Ewen Chew is a Reuters market analyst. The views expressed are his own. Editing by Sonali Desai
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