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USD/CNH Technical Analysis: Yuan Gains Hinted Ahead

USD/CNH Technical Analysis: Yuan Gains Hinted Ahead

Ilya Spivak,

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Talking Points:

  • USD/CNH Technical Strategy: Flat
  • Bearish Engulfing Candlestick Pattern, RSI Divergence Hints at Yuan Gains Ahead
  • Absent Reversal Confirmation, Pivotal Event Risk Argue Against Taking Short Trade

The US Dollar may be preparing to turn lower against the Chinese Yuan in offshore trade after prices put in a Bearish Engulfing candlestick pattern below chart resistance. The appearance of negative RSI divergence hints at ebbing upside momentum and reinforces the case for a downside scenario.

Near-term support is at 6.4217, the intersection of a rising trend line and the 38.2% Fibonacci retracement. A break below this level on a daily closing basis opens the door for a test of the 23.6% Fib expansion at 6.3950. Alternatively, a push above the 50% retracement at 6.4546 clears the way for a challenge of the 61.8% level at 6.4875.

Confirmation of reversal is absent without a clear-cut breach of the series of higher highs and lows in play since late October. Furthermore, while the Yuan’s inclusion into the IMF’s SDR basket amounting to a non-event as expected, a round of pivotal US event risk may materially alter technical positioning. With that in mind, we will continue to stand aside for now.

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