USD/CNH ignores Thursday’s break in five-day losing streak amid PBOC’s liquidity infusion, US-China tussle

• USD/CNH turns red after stepping back from 6.8496.
• PBOC injects 100 billion yuan liquidity via 7-day reverse repo.
• Bloomberg cites US-China tussle behind Thursday’s tech rout.
• US NFP, risk catalysts will be the key, cautious moves ahead of the key data will restrict market activity.

USD/CNH drops to 6.8430, down 0.05% on a day, during the initial Friday trading. The off-shore Chinese Yuan (CNH) dropped its bullish bias against the US dollar the previous day while snapping a four-day losing streak amid a broad risk-off mood favoring the greenback. Even so, the market’s pre-NFP trading lull seems to recall the pair sellers.

The current selling pressure also pays a little heed to the People’s Bank of China’s (PBOC) 100 billion yuan liquidity infusion via 7-day reverse repo. The reason could be spotted from the maturity of the same amount of reverse repo.

It should also be noted that the US-China tension also fails to weigh on the quote during the pre-NFP trading. The world’s two largest economies are at loggerheads for a long and have recently taken severe trade punitive measures. While spotting some of them, Bloomberg cites China’s semiconductor threat as a major reason that sparked a $100 billion chip rout the previous day. “China is planning a sweeping set of new government policies to develop its domestic semiconductor industry and counter recent Trump administration restrictions,” said the news.

Also read: China’s Pres. Xi: Will never back down in facing foreign interference

Elsewhere, the market’s risk-tone remains mostly sluggish as equity traders nurse the previous day’s heavy losses whereas the US 10-year Treasury yields rose 1.5 basis points (bps) to regain 0.636%.

The recovery in the sentiment could also be attributed to the news coronavirus (COVID-19) vaccine hopes and news that the US policymakers finalized on the funding gap when the current bill expires on September 30. However, the “serious differences” between the opposition Democrats and the ruling Republicans keep delaying the much-awaited US stimulus whereas COVID-19 fears are still on the table.

Moving on, trades may keep eyes on the US employment data for fresh impetus while also observing the risk catalysts for short-term direction.

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Technical analysis

10-day SMA and a downward sloping trend line from July 30 guard the pair’s immediate upside around 6.8650 and 6.8743 respectively. Until then, bears can keep 6.8000 on their radars.