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The US-Chinese trade negotiations were not exactly simple so far, but now the whole thing is getting even more complicated. After the House of Representatives almost unanimously passed the Hong Kong Bill that envisages sanctions against China should the status of Hong Kong as a special administrative region be under threat the trade negotiations have become almost inseparable from the events in Hong Kong.
On the other hand, Chinese President Xi Jinping broke his silence on trade talks, and says that Beijing wants to work for a trade deal with the United States but is not afraid to "fight back" to protect its own interests. “We want to work for a ‘phase one’ agreement on the basis of mutual respect and equality,” Xi said. However, President Trump later responded: “I told President Xi, ‘This can’t be like an even deal. We’re starting off from the floor and you’re already at the ceiling'.” Such rhetoric indicates that there is little chance that both sides could find a balancing point any time soon, although China is making some progress on intellectual property protection as over the weekend the government announced some new measures to improve the IPR process.
However, the sticking points remain as China does not want to commit a specific amount of farm goods purchase and the US is reluctant to roll back existing tariffs. For the FX markets, neither "good news" nor "bad news" have big impact for now. It seems only "breaking news" can move the market.
Amid such a geopolitical turmoil, although USDCNH has resumed its bull-run from last week or so, and the pair has jumped above 21DMAs but for today little edgy, trading at 7.0332 levels.
Trade Strategy: At this juncture, we remain short in CNH via 3-month (7.00/7.25) debit call spread. If the scenario outlined above unfolds, we will re-assess our stance but at the moment there are no changes to our CNH recommendations. The positively skewed IVs of 3m tenors indicate that the upside risks of USDCNH are foreseen, OTM call bids up to 7.20 (refer above chart, spot reference: 7.0332 levels). Courtesy: Sentrix & Commerzbank
