FxWirePro: USD/CNY tumbles to 2-week low but unwise to buck major trend - Deploy ATM straddles amid languishing US-China narrative

The US-China trade talks appeared to have somehow disappointed the market as the latest news suggests there is little progress made during the negotiation. So far, it seems that China and the US failed to release a joint statement which was predicted to be reached by the market. 

The US made a very diplomatic statement: “we appreciated the Chinese delegation coming to the United States to participate in these meetings. The US delegation will be briefing their principals on the discussions.” China’s statements sound a bit positive, as the Commerce Ministry said that both sides had constructive and honest talks. 

On the back of rising uncertainties, USDCNH was quite volatile in the morning session. Today’s USDCNY fixing came in significantly below the market expectations, confirming the PBoC’s intention to maintain a stable currency. 

There is an invisible hand behind the CNY. When USDCNY was heading towards the 6.9350 hurdle yesterday, the market was expecting the PBoC would defend this level as it did in the past. And the PBoC delivered, since USDCNY is now back below 6.8350 after a quick down move which is 2-week lows. 

Otherwise the CNY is likely to experience another bumpy journey, given the backdrop of overall EM weakness. At this conjunction, the market is holding the breath to see the next steps from PBoC. A lower-than-expected fixing rate (i.e. CNY stronger) would somehow manage the market expectations. 

Trade tips: Buy USDCNH 2M ATM straddle, execute strategy by buying at-the-money call and at-the-money put. Courtesy: Commerzbank 

Currency Strength Index: FxWirePro's hourly USD spot index is at -21(which is mildly bearish), hourly CNY spot index was at tad below -34 (bearish), while articulating at 13:36 GMT. For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex