China's central bank has recently reinforced its commitment to exchange-rate stability. In its Reform and Development Plan for the 15th Five-Year Plan period, the PBOC said it intends to give the market a decisive role in exchange-rate formation while keeping the renminbi basically stable at an adaptive and equilibrium level. The regulator also plans to improve market-based interest-rate formation and transmission mechanisms and strengthen financial support for consumption and the real economy.
The monetary-policy stance therefore remains supportive, although describing it simply as increasingly dovish would be too strong. The next key reference point will come on August 20, when China's Loan Prime Rate (LPR) is scheduled to be published. This is not a formal PBOC policy meeting: the National Interbank Funding Center calculates the LPR from quotations submitted by participating banks under PBOC authorization. In July, the one-year LPR remained at 3.00%, while the over-five-year rate stood at 3.50%, and there is currently little indication of an imminent change.
The U.S. Dollar Index is meanwhile trading around 99.7, with the greenback facing moderate pressure from the latest inflation data. Following softer July consumer-price figures, the U.S. Bureau of Labor Statistics reported that the Producer Price Index for final demand was unchanged in July after declining 0.1% in June. On an annual basis, producer prices slowed from 5.5% to 4.7%.
Core producer prices excluding food and energy rose 0.2% month over month, slowing from 0.4% previously, while the annual rate eased to 4.2%. The data reinforced expectations that the Federal Reserve may have less urgency to tighten monetary policy at its September meeting. Market-implied probabilities tracked by the CME FedWatch Tool declined after the inflation releases, although these estimates remain highly sensitive to incoming economic data and change throughout the trading session.
Support and Resistance Levels
On the daily chart, USD/CNH remains well below the resistance line of a descending channel with dynamic boundaries around 6.8300–6.7000.
Technical indicators turned lower in early March and continue to signal downside pressure: the faster moving averages of the Alligator indicator are moving further below the slower line, while the Awesome Oscillator histogram is forming declining bars in negative territory.
Resistance levels: 6.7600, 6.8200.
Support levels: 6.7300, 6.6700.
USD/CNH Trading Scenarios and Forecast
Short positions may be considered after a decline and consolidation below 6.7300, with a target at 6.6700 and a stop-loss at 6.7600. Time horizon: seven days or more.
Long positions may be considered after a rise and consolidation above 6.7600, with a target at 6.8200 and a stop-loss around 6.7300.
