FxWirePro: CNY still vulnerable on economic slowdown – Deploy costless options structures of USD/CNY

The Chinese policy makers made quite a few commentaries on the economic outlook and financial stability in recent days. Evidently, the governments seem to be concerned about the economic slowdown as well as the meltdown of the financial markets, and have promised to provide supportive policies to stabilize the economy. 

Meanwhile, the government is intending to unveil large tax reduction programs from next year on, and the pro- posed tax cut will be around 1% of GDP. This implies that China has shifted its policy focus from financial deleveraging to pro-growth approach, suggesting that the authorities are keen to prevent rapid growth deceleration. 

Certainly, an easing bias indicates that the CNY is likely to weaken further. However, media reported that President Xi will meet President Trump in late November during the G20 summit, which will be the first time both leaders meet in person to discuss the trade issues.

In our opinion, the PBoC will continue to maintain the currency stability before this important meeting. That said the 7.00 mark for USDCNY remains the “red line” for now. 

Revised bearish CNY targets for 2019 are less than 1/3rdlikely according to prices of digital USD calls/CNY puts. Position for medium-term RMB weakness by buying 9M USD calls/CNH puts financed costlessly by shorting 9M AUDCNH strangles. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly CNY spot index is showing -86 (which is bearish), USD spot index is flashing at 129 (which is bullish), while articulating at (13:35 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex