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USD/CNH technical outlook

USD/CNH has failed to break above major long-term resistance; the fall below key support is an indication that USD/CNH’s rally has stalled for now and what is the outlook and what are the key levels to watch?

Source: Bloomberg

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

Source: TradingView

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

Source: TradingView

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

Source: TradingView

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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