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USD/CNH Technical Analysis: Yuan Drops to 4-Month Low

USD/CNH Technical Analysis: Yuan Drops to 4-Month Low

Ilya Spivak,

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Talking Points:

  • USD/CNH Technical Strategy: Flat
  • US Dollar Overturned Bearish Reversal Signal, Rising to 4-Month High vs. Chinese Yuan
  • Risk/Reward Considerations, Absence of Confirmation Argue Against Taking Trade for Now

The US Dollar overturned bearish technical cues noted earlier in the week, rising to the highest level infour months against the Chinese Yuan in offshore trade may. Negative RSI divergence warns of ebbing upside momentum and hints a downward reversal may yet materialize in the days ahead.

Near-term resistance-turned-support is at 6.5499, the 14.6% Fibonacci expansion, with a break below that on a daily closing basis opening the door for a challenge of the December 16 low at 6.5141. Alternatively, a push above the 23.6% level at 6.5720 clears the way for a test of the 38.2% Fib at 6.6079.

Prices are too close to resistance to justify taking up the long side from a risk/reward perspective. Furthermore, the available trading range is too narrow relative to ATR to make for attractive positioning. On the other hand, a clear-cut bearish reversal signal is absent for now. We will remain on the sidelines for now, waiting for prices to offer a better-defined trading opportunity.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.