📝 CNY Bearish Pressures to Decrease In 4Q: J.P. Morgan FX Strategy

CNY FX has been pressured by China􏰁s cyclical uncertainty and elevated core rates vol for the better part of this year. 3Q saw some improvement on the former and nega- tive delta on the latter. We see directionality of CNY in 4Q as largely an extension of 3Q, though a number of technical forces could move the needle marginally in the direction of less bearishness on the currency.

While rescue measures are generally pro-risk, details are yet to be verified by officials, lessening the urgency of abandoning the bearish CNY view right here right now, especially as USD/CNH currently trades on par with/slightly low vs rate differentials. More importantly, these stabilizing measures need to be viewed in the context of lukewarm economic data and continued foreign capital outflows that are still FX negative.

We prefer to wait for clearer signs of exhaustion/reversal of the equity outflow trend to reassess our core UW CNY FX stance. - J.P. Morgan FX Strategy