USD/CNH hits 5-day low

• The USD/CNH pair is under pressure, having dived out of the uptrend on Tuesday.
• The pair hit a five-day low of 6.8056. The relief could be short-lived, courtesy of escalating trade tensions.

The Chinese yuan is showing signs of life.

The USD/CNH pair (offshore yuan exchange rate) is printed a five-day low of 6.8056 earlier today and was last seen trading 6.8465.

The currency pair pierced the ascending trendline (drawn from the June 14 low and July 10 low) yesterday as the PBOC reintroduced FX forwards reserve ratio on Monday to stall the decline in the yuan.

So, the technical correction seems to be gathering pace. However, the pullback could be short-lived as the Sino-US trade tensions continue to rise.

The US will begin collecting 25 percent tariffs on another $16 billion in Chinese goods on Aug. 23, having imposed tariffs on $34 billion in goods last month.

As a result, the PBOC would want to keep the yuan on a slow declining trend as a weaker currency would help the Chinese economy absorb shocks from the trade war with the US.

USD/CNH Technical Levels

Key support: 6.80 (psychological level), 6.7738 (July 31 low), 6.7380 (July 26 low)

Key resistance: 6.8320 (10-day moving average), 6.8758 (previous day's high), 6.9124 (August 3 high)