USD/CNH technical outlook

USD/CNH short-term technical forecast – neutral

The Chinese yuan’s rise above key resistance against the US dollar is a confirmation that the downward pressure of the Chinese currency has faded in the interim.

USD/CNH 240-minutes chart

USD/CNH this week has fallen below quite a strong cushion at the October 27 low of 7.17, near the 200-period moving average on the 240-minute charts. It rebounded last week from near the converged cushion but failed to cross above the mid-point of a slightly downward-sloping channel from the end of October (at about 7.25). – a path that was highlighted in the previous update.

The bearish break has triggered a double top pattern (the October and the early-November highs), opening the way toward the October low of 7.01 (see chart).

USD/CNH monthly chart

A month ago, this column pointed out the risk of a pause in the USD/CNH bull run. The pair last month briefly rose above a major hurdle at the 2019 and 2020 highs at 7.20, coinciding with the upper edge of a slightly upward-sloping channel from 2018 (See chart).

At the same time, negative divergence (rising price associated with stalling or weakening momentum) on the monthly, weekly, and daily charts indicated that the seven-month-long rally was showing signs of fatigue.

Zooming on the daily charts, the floor at 7.01 coincides with the 89-day moving average (now at about 7.00), which hasn’t been broken since the USD/CNH rally began earlier this year. Hence some sort of a rebound from around 7.00-7.01 wouldn’t be surprising.

However, any rebound could encounter stiff resistance at the support-turned-resistance at 7.17.

Furthermore, upward momentum on longer-term charts, including the weekly and the monthly charts, remains strong (despite the recent drop in USD/CNH), so any retreat could be limited.

USD/CNH daily chart

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