USD/CNH retreats from weekly top, still above 7.1200, amid US-China tension

• USD/CNH fails to extend Friday’s strong gains.
• US President Trump keeps alleging China for virus outbreak, Global Times’ Editor embarks upon nuclear arsenal.
• Fed Chair Powell tried to placate traders while defying negative rates, expecting a steady recovery.
• The market’s risk-tone remains mixed amid complex catalysts and a light calendar.

USD/CNH declines to 7.1235, down 0.14% on a day, amid the early Monday’s trading. In doing so, the pair takes a U-turn from the highest since May 07, 2020. While the broad optimism surrounding no negative rate from the US Federal Reserve and steady recovery of the US seem to have triggered the market’s optimism, US-China tension keeps the risks on the cards.

In addition to his weekend comments that the US economy will recover steadily through the second half of 2020, the US Federal Reserve Chairman Jerome Powell also poured cold water on the face of those expecting negative Fed rates. The Fed Chair, while speaking during the US TV interview “60 Minutes”, also cited fears of Unemployment rate being 20-25%.

Looking at the US-China fight, China’s Global Times’ Editor Hu Xijin was harsh with this latest tweet calling for the dragon nation to pile-up the nuclear arsenal. This might have been in response to US President Donald Trump’s sustained allegations that China could have stopped coronavirus outbreak. It should also be noted that the US leader also cited workings on the “super-duper missile” to outpace military rivals including Russia and China late last week.

It should also be noted the China’s further easing of lockdown restrictions, as noted by the increase in passenger load rates in metros, also add strength to the Chinese currency. Even so, China’s Commerce Minister Zhong Shan recently said that coronavirus has caused a huge shock to the economic and social developments.

That said, the market’s risk-tone sentiment remains mixed with the US 10-year Treasury yields flashing mild gains to 0.646% but stocks in Asia fail to portray the broad optimism.

Considering the lack of major data/events left for publishing during the day, the pair traders may have to pay close attention to the qualitative catalysts like US-China tension and virus updates for fresh impulse.

Technical analysis

An ascending trend line from Wednesday, at 7.1190 now, offers immediate support to the pair ahead of the monthly low near 7.0800. Meanwhile, an upside clearance of 7.1350 nearby resistance can challenge May 03 top close to 7.1563.