USD/CNH drops to lowest since July 29 ahead of China trade data

• USD/CNH is trading below 6.90 for first since the end of July.
• Offshore Yuan is drawing bids as US has lifted its designation of China as an FX manipulator.
• USD/CNH's slide suggests markets have priced phase one deal to be signed Wednesday.
• Upbeat China trade data will likely bolster bullish pressures around Yuan.

USD/CNH is flashing red for the fifth straight day and is currently trading at 6.8780, the lowest level since July 29.

The offshore yuan (CNH) is drawing bids likely on the news that in the US Treasury department’s semi-annual report, China is no longer be deemed a currency manipulator. The Treasury's report has been released before the signing of the US-China phase one trade deal on Wednesday.

Deal priced in?

The USD/CNH pair is currently reporting a 1.27% drop on a month-to-date basis, having dropped by 0.94% in December. Also, the pair is reporting losses for the fifth straight month, having topped out a 7.1959 in September last year.

The markets, therefore, seem to have priced in the phase one trade deal and the Yuan may come under pressure on profit-taking following Wednesday's official confirmation of the deal.

Focus on data

China data due at 03:00 GMT is forecasted to show the trade surplus rose to $48 billion in December from November's $37.93 billion. Exports or outbound shipments are seen improving to +3% year-on-year and imports +10% year-on-year.

A big beat on expectations will likely bode well for Yuan and other risk assets like the Australian dollar, New Zealand dollar and global equity markets.

Technical levels