USD/CNY pulls back from 7-month highs

• USD/CNY has backed off from the 7-month high of 6.6247.
• PBOC prefers modest CNY depreciation, may step in if the near 90-degree decline in CNY continues.

The USD/CNY pair rose to 6.6247 today - the highest level since November 22 and was last seen trading at 6.6134.

The pullback could be associated with the short-term overbought conditions, as highlighted by the 14-day relative strength index (RSI). Currently, the indicator is at the highest levels since November 2016.

Further, it is widely believed the People's Bank of China (PBOC) prefers moderate CNY depreciation and may intervene if the CNY continues to depreciate at a faster pace.

"However, the chances of a sizeable depreciation have risen," economists at Capital Economics, said in a note, according to Reuters. The argument has merit as the PBOC did not raise rates following the Fed rate hike on June 13, allowing the yield differential to rise in the CNY-negative manner.

USD/CNY Technical Levels

Key resistance: 6.6419 (Nov. 21 high), 6.6511 (Nov. 13 high).

Key support: 6.6227 (Dec. 13 high), 6.60 (psychological support).