USD/CNH Review: Risk-on in Chinese stocks is not helping yuan, technical bias remains bullish

• Chinese yuan remains on the defensive despite Shanghai Composite's sharp recovery from Friday's low.
• The USD/CNH is looking north, according to technical charts, and the bullish case would weaken only if the spot drops below key rising trendline.

Chinese stocks are on the offensive on stimulus hopes, but so far, the risk-on has not had any positive impact on the yuan.

At press time, the Shanghai Composite is trading 8 percent above Friday's low of 2449. The coordinated assurance from regulators on Friday seems to have convinced markets that the authorities are very firm on capping financial market risks.

That said, the forex markets are likely not impressed by the assurances from regulators. This is evident from the fact that USD/CNH is currently reporting moderate gains at 6.9362, having printed a low of 6.9245 on Friday.

More importantly, the technicals remain biased toward the bulls. For instance, the pair continues to move along a rising trendline with upward sloping 5-day and 10-day exponential moving averages (EMAs). The prospects of a rally to 7.00 would weaken sharply only if the pair falls below the trendline support, currently seen at 6.8724.

USD/CNH Technical Levels

Resistance: 6.9520 (last week's high), 6.9584 (yearly high), 7.00 (psychological hurdle)

Support: 6.9199 (10-day EMA), 6.9049 (Oct. 16 low), 6.8668 (Oct. 11 low)