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Chart of the Day: USDCNH

USDCNH rallied back above the 7.000 level on Friday’s trading after the uninspiring phase one trade deal saw USD recoup most of its losses.

USDCNH Daily Chart

Markets were primed for a significant deal last week, expecting significant tariff rollbacks. Trade proxy, USDCNH, weakened to a four-month low of 6.9214 in Thursday’s trading ahead of the highly anticipated formal announcement on Friday.

But as the details of the much-anticipated Phase One deal emerged, USDCNH strengthened back above the 7.000 level in Friday’s trading as markets learned of a deal less inspiring than hoped for, particularly with some $380b of US imports maintaining tariffs.

The Phase One deal canned new tariffs that had been scheduled for Sunday, halved tariffs on $120bn of Chinese goods from 15% to 7.5%, and saw China agree to purchase at least $40bn worth of US agricultural goods and adhere to new intellectual property commitments.

USDCNH recouping most of its losses Friday, as well as 1-week implied volatility up at 7.850, suggests skepticism remains around the ongoing relationship and surveillance of the agreement.

The market wants more detail and a more significant phase trade deal for a meaningful move below the 7.000 level, something markets might have to wait beyond the 2020 US election to see. US Trade Representative Robert Lighthizer talking about a trade resolution, said: “This is going to take years. We’re not going to resolve these differences very quickly.”

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