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Talking Points:

• USD/CNH Technical Strategy: Flat

• US Dollar completes Head & Shoulders setup, hinting at deeper losses vs. Yuan

• Risk/reward considerations, fundamental instability argue against taking a trade

The US Dollar is digesting losses in a narrow range after dropping to the lowest level in over a month against the Chinese Yuan in offshore trade. Prices appear to have completed a bearish Head and Shoulders top chart formation, hinting that a larger downward reversal may be in progress.

From here, a daily close below support at 6.5515, the 50% Fibonacci expansion, opens the door for a challenge of the 61.8% level at 6.5281. Alternatively, move back above the 38.2% Fib at 6.5750 paves the way for a retest of the 23.6% expansion at 6.6040. Broadly speaking, the H&S setup implies a measured downside objective near the 6.39 figure.

The available trading range is too narrow to justify taking a trade from a risk/reward perspective. Furthermore, we remain leery of any CNH exposure as the tug of war between Beijing policymakers and the markets makes for an inherently unstable fundamental landscape. With that in mind, we will stand aside.

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