USDCNH had been on a tear up until the beginning of this month, but the sharp decline off the high and subsequent rally is bringing into focus a potential topping pattern – Head-and-shoulders (H&S). The left shoulder and head are in place, just waiting on the right shoulder to develop.
With a break of the clean rising channel built over the past couple of weeks we soon see the right shoulder come to form. If it breaks it could offer traders a near-term trade down to the neckline that eventually turns into a larger trade on a confirmed H&S break.
To confirm the pattern the neckline does indeed need to break, so while the makings are there and a short-term trade could develop off a channel break, we can’t get too excited about its prospects just yet. These patterns can shape-shift and later look like nothing at all.
On the downside a channel break will target the neckline, while a neckline break will first have up the trend-line off the April low, followed by the 7-line. If neither break, then no trades to take from where I sit…
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USDCNH Daily Chart (H&S top?)
USDCNH 4-hr chart (watch for channel break)
***Updates will be provided on these ideas and others in the trading/technical outlook webinars held at 930 GMT on Tuesday and Friday. If you are looking for ideas and feedback on how to improve your overall approach to trading, join me on Thursday each week for the Becoming a Better Trader webinar series.
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX
