After opening with further steep losses, Chinese equities staged a recovery to small gains, but were back down modestly on the day by early afternoon.

The FX market's attention will likely remain on the CNY, given that the Chinese authorities have signaled that they will allow the currency to fall more against the USD.

Strong signal sent on 14 December 2014 to CNY basket when PBoC decided to construct index for their currency.

We think that this recent announcement of the launch of the CFETS CNY index is a clear indication that China will allow USDCNY to move higher in an environment of USD strength, as the authorities shift their focus towards a basket measure of currencies.

We expect USDCNY to reach 6.80 by mid-2016, this equates to a 2.2% fall in the CFETS NEER index.

A flat NEER would imply that USDCNY could reach 6.65 by mid-2016 and 6.80 by end-2016, not far from our own forecasts.

As such, we see more room for Yuan weakness ahead against the USD, with the offshore CNH currency likely to be more volatile, although at risk of facing stronger intervention, given that the CNH-CNY spread has widened sharply of late.

China's Caixin manufacturing PMI (Monday) will be the key data focus of the week, following the official NBS measure released on Friday, providing another gauge of December activity.

We project the Caixin PMI to have edged down to 48.5 from the previous 48.6. While the advance estimates of Q4 GDP in Singapore indicates a small sequential improvement in Q4 growth.

Elsewhere, December export numbers from Korea, Taiwan and Malaysia, which are likely to show double-digit contractions on a y/y basis (USD terms), given the drag from weak external demand.

We maintain our long USDCNH trade recommendations for TP at 6.80 by end of H1 2016.