China Yuan Back to Rising Trend on Strong Fundamentals, Awaits The 8 July Data Deluge

China's yuan is headed to end the second consecutive month stronger against the dollar, further distancing from the 19-month low of 6.2673 touched on 30 April as most indicators released during June surprised on the higher side.

Investors now consider the appreciation trend has returned after the sharp fall in the first four months of 2014.

The yuan has rallied about 0.5% so far in June after having weakened more than 3.4% since end-December to the April low.

The Chinese currency had been kept pegged to the US dollar in a narrow band around 6.8300 for two years to June 2010, and after widening the band, the renminbi grew 13% stronger by the 14 January record of 6.0407.

Data Boost

China's trade surplus widened to $35.92bn in May from $18.45bn in the previous month, beating analysts' forecast of $22.60bn, data showed.

The consumer price inflation in Asia's largest economy quickened to 2.5% year over year in May, faster than a poll forecast of 2.4% and compared with 1.8% in April.

According to the preliminary estimate released on 23 June, the HSBC manufacturing PMI for June has risen to the expansion territory and hit 50.8, compared to the May final reading of 49.4 and consensus of 49.7. Readings below 50 show contraction in the economy.

8 July

The 8th of July is going to be a very big day for the Chinese yuan as important releases such as consumer price inflation, industrial production, trade balance, retail sales - all for June - and Q2 GDP data are scheduled for that day.

Further data boost will likely take the "red back" to new highs such as 6.1767 and 6.1217.

Technical View

In fact, the USD/CNY has failed below the 61.8% Fibonacci retracement of the July 2012 to January 2014 downtrend coinciding with the 6.2598-6.2673 area.

Now that the pair has briefly broken below the 50% level of 6.2155, important downside levels seen are 6.1767, the 38.2% level and then 6.1217, the 23.6% mark. A decisive break of that level will open the doors to the all-time low of 6.0407 hit on 14 January.

On the higher side, the 6.2598-6.2673 area has become an important barrier for the pair. Above that, 6.2779, 6.3035 and 6.3414 are some intermediate resistance levels ahead of the 2012 high of 6.3945.

The People's Bank of China, China's central bank, had set the fixing rate at 6.1543, higher than Thursday's 6.1538.