Fundamental Forecast for the Yuan: BEARISH

The onshore Yuan lost against the US Dollar for the fourth consecutive week and hit new lows at levels not seen since November 2010. As of 10:20 am EDT, the onshore Yuan (USD/CNY) dropped -0.48% to 6.6869. The offshore Yuan lost value against the Dollar for the third consecutive week, down -0.35% to 6.7001. Both the onshore Yuan and offshore Yuan gained against the British Pound for the third consecutive week: the onshore Yuan (GBP/CNY) increased +2.13% while the offshore Yuan (GBP/CNH) rose +2.01%. Looking into next week, the calendar is packed with medium- and high-ranked events on the horizon. Heavy emphasis will be on China's CPI for June and 2Q GDP. Also, the Bank of England will announce their rate decision on July 14th, which is likely to bring considerable volatility to FX markets. China's Central Bank has been guiding the Yuan lower against the Dollar in the effort of evening out the Pound's devaluation in the Yuan currency basket. If the Pound continues to lose ground, the PBOC will have to decide if wants to continue to weaken the Yuan against the Dollar or to revise its exchange rate target.

China's fundamentals are likely to provide little support to Yuan rates in the coming week. China's 2Q GDP to be released on July 14th is expected to grow at 6.6%. China's growth in the first quarter has already dropped to 6.7%, the lowest level since 1Q'2009. Last week, China's Market News: China Unleashes Revised GDP Calculation Method. Under the new method the value of 2015 GDP was revised up by 879.8 billion Yuan; however, growth only increased by +0.04%. Thus, the accounting adjustment is less likely to make a significant change to the 2Q GDP print. Also, China's trade condition is expected to further diminish: imports are expected to shrink for another month with a drop of -6.2% and exports are expected to contract by -5.0%. Within the country, the growth in Industrial Production is expected to slow down to 5.9% in June and the Retail Sales in the same month is expected to drop to 9.9%. China's fixed assets investment excluding rural households may to continue to drop as well: the June figure is expected to fall to 9.4%. In a nutshell, the past month and quarter could be the worse for the world's second largest economy since the global financial crisis. Amid the nation-wide slowdown, Yuan rates are lacking upward momentum.