It's likely the PBOC will lower reserve requirement ratios and interest rates in their efforts to blunt the economic damage caused by the corona virus nL1N29Y0BF, increasing upward pressure on USD/CNH toward the pivotal 7.0 level nL1N29X0RI and pressure on China to support the yuan there.
If not, a breakout would be seen as an admission that devaluation is needed to cushion the blow.
Such and admission would be seen as risk-off and haven JPY on.
It would also complicate the implementation of the phase 1 U.S.-China trade deal that includes China's assurances against yuan manipulation and mandated surging purchases of U.S. goods and services.
Those huge purchases were already seen as a stretch, and would be more so if domestic demand is curtailed by the coronavirus.
Of course, a yuan fall below 7.0 to the dollar wouldn't necessarily be manipulation, rather a rational market reaction to macroeconomic forces.
At the moment, markets are trying very hard to look past the virus-related hardships ahead, instead focusing on the financial asset-inflating stimulus responses those hardships could produce nL4N29Y2P5.
This longer, more risk-on and USD/JPY bullish view is supported by the ongoing need for higher returns than BOJ and ECB negative interest rates offer for funding long-term liabilities of aging populations.
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