USD/CNH struggles to justify inflation data amid trade tussle with US

• While better than forecast CPI plays a positive tune for USD/CNH, downbeat PPI and trade tension limit the upside.
• The US delays licenses to do business with Huawei, warns fresh sanctions/ending talks to China.

With a slew of negative headlines for China rolling out since early morning in Asia, USD/CNH fails to cheer upbeat CPI data from the dragon nation as it makes the rounds to 7.0774 during early Friday.

In addition to holding back licenses to conduct business with China’s Huawei, the US has also warned of severe sanctions, ending talks with Beijing if it uses the military to crackdown Hong Kong protests. The news reports follow the previous-day announcement from the Trump administration that barred government departments to purchase equipments from top Chinese companies.

As a response to this, China’s Foreign Ministry spokesperson has recently mentioned, via People’s Daily, that they are to all necessary measures to safeguard Chinese companies’ legitimate rights and interests.

On the economic calendar, China’s July month inflation data showed that headline Consumer Price Index (CPI) crossed 0.2% and 2.7% forecasts to 0.4% and 2.8% figures on MoM and YoY basis respectively. Further, Producer Price Index (PPI) shrank more than -0.1% forecast to -0.3% on a yearly format.

Following mixed catalysts, global risk sentiment fails to hold the latest recovery with the US 10-year treasury yields declining more than 2 basis points to 1.693% by the press time.

Moving forward, US PPI and trade/political news/ headlines can keep traders busy for the day. While July month PPI is likely to remain unchanged at 1.7% on a YoY basis, the MoM number could rise to 0.2% from 0.1%. Additionally, PPI ex Food & Energy (YoY) may inflate to 2.4% from 2.3%.

Technical Analysis

A four-day long descending trend-line at 7.09 becomes immediate resistance, a break of which can propel prices to an early-week high of 7.14. Alternatively, a downside break of 7.04 will divert the quote towards 7.00 and 6.9790 numbers to the south.