USD/CNY gapped lower in the open this morning, guided by lower USD/CNY fix at 7.0995 (vs. 7.1021 yesterday). It appears that 7.10 is no longer the line in the sand. USD/CNY last seen at 7.1245, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Risks somewhat skewed to the downside

"Pattern of setting the fix stronger looks like a continuation of PBOC's 'measured' pace of appreciation since April, via the fix to influence the path of RMB. This is consistent with the goal of RMB internationalisation. The next few days will be key to monitor if this is a one-off fix below 7.10 or the trend can continue. This can potentially have some spillover effect onto other USDAXJs especially if USD/CNY can go below 7.10."

"A gradual pace of RMB appreciation can serve as a wealth-effect and confidence repair function. On wealth channel, it can stabilize domestic asset prices - equities, household wealth etc.. Stable/resilient RMB can also help encourage return of flows into RMB-denominated assets. From an optics perspective, firmer RMB and higher equity prices tend to go hand in hand. In a way, this helps to repair confidence and strengthen momentum."

"Bullish momentum shows early signs of fading while RSI fell. Risks somewhat skewed to the downside. Support at 7.1240 (21 DMA), 7.1020 and 7.0870 (76.4% fibo retracement of 2024 low to 2025 high). Resistance at 7.1380 (61.8% fibo), 7.1490 (50 DMA)."