As noted earlier, the offshore yuan snapped a record 14-day winning streak against the dollar on Tuesday after the PBoC strengthened the yuan fix less than expected overnight.

Again, it’s all about expectations. That is, the PBoC ostensibly takes the previous day’s action into account when determining the next day’s fix, although during the late May/early June epic short squeeze, they added a “counter-cyclical adjustment factor” that gives them a license to do as they please in the event they feel things have gotten too one-sided.

So what happens here is that analysts and traders have their own models that determine what they think the fix should be, and it’s basically a crap shoot from there. So if the reference rate is set weaker than expected, that’s likely to trigger a selloff, even if it’s still stronger than the previous day’s fix. Hence what we saw on Tuesday.

Well today (Wednesday), the PBoC strengthened the fix for an eighth consecutive day – that’s the longest run since 2015, following the devaluation.

PBOC STRENGTHENS YUAN FIX FOR 8TH DAY, LONGEST RUN SINCE 2015

— Walter White (@heisenbergrpt) September 6, 2017

In contrast to Tuesday’s fixing, Wednesday’s fixing was stronger that expected: the average of forecasts from 19 traders and analysts in a Bloomberg survey had predicted a level of 6.5335. The fix was 6.5311. And so, the offshore yuan rose again, after a one-day break:

So we’ll see how CNH and CNY trade in the overnight, but the important thing to understand here is the dynamic.

We still maintain that it’s just a matter of time before one of these fixings comes in much, much weaker than expected. That’s not to say the medium-term trend won’t be a stronger yuan and it’s certainly not to suggest that the PBoC is eager to upset any apple carts ahead of the Party Congress next month. It’s just to say that if there’s anything the PBoC hates, it’s the idea that market participants think the currency is a one way trade. And this is becoming a one-way trade.