China slipped into deflation for the first time since Feb 2021 with July CPI coming in at -0.3% YoY. Today's report highlights the economy faces subdued price pressures from weak economic demand, but the details don't point to an imminent risk of a deflationary spiral.

The divergence in data surprises between US and China is likely to act as a headwind for the Yuan and an anchor for the USD.

The path of least resistance for USD/CNY is likely a break above the YTD highs.