FxWirePro: CNY Curry in Chinese Kitchen on the US-China Trade Deal? OTC FX Market on See-saw Mood

How will CNY perform if a trade deal can be reached? It is believed that this is the key question for every market player at this moment. Some would argue CNY could strengthen as the risk sentiment will improve. To be blunt, the so-called "market sentiment" is somehow like my son's mood swings. 

Therefore, we can’t only cite “market sentiment” to justify the currency movements. CNY will ultimately depreciate no matter whether a trade deal can be reached. If a deal can be struck, CNY will weaken as China's current account surplus will be shrinking simply because China will have to purchase substantial amount of goods from the US, although the US probably don’t want to see a weaker CNY. 

If both sides can't reach an agreement, indicating that the trade tensions are likely to re-escalate, CNY will also depreciate as growth outlook will be gloomier. That said, purely from a trade talk perspective, any constructive view on CNY is still dubious. 

Hence, the news that the US canceled the preparatory trade talks, which was later denied by Larry Kudlow, head of the National Economic Council, will only create some market volatility, but won’t change my opinion at all.

OTC FX updates: 

You could easily make out that the positively skewed IVs of USDCNH have been stretched out on either side (refer above nutshell). This is interpreted as the hedgers' bid for both OTM calls and OTM put options.

Trade tips: Contemplating above factors, we advocate buying 7M 40D (6.98 strikes) USD calls/CNH puts vs sell 7M 4.5052 - 5.1658 AUDCNH Strangle. Courtesy: Sentrix & Commerzbank

Currency Strength Index: FxWirePro's hourly CNY spot index is inching towards -77 levels (which is bearish), while hourly USD spot index was at 61 (bullish) while articulating (at 13:54 GMT). 

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex