USD/CNH Technical Analysis: Yuan Devaluation to Resume?

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Talking Points:

• USD/CNH Technical Strategy: Flat
• Prices may be forming a double bottom after descending to a monthly low
• Clouded fundamental outlook, adverse risk/reward setup argue for inaction

The US Dollar has paused to digest losses after two days of heavy selling brought prices to retest the swing bottom established in mid-February. An Inverted Hammer candlestick hints at indecision and may precede an upside reversal, but confirmation is absent for the time being.

Near-term support is at 0.4945, the 23.6% Fibonacci expansion, with a break below that on a daily closing basis opening the door for a test of the 38.2% level at 6.4547. Alternatively, a move back above the 14.6% Fib at 6.5190 sees the next upside barrier at 6.5589, the February 29 high.

The available trading range is too narrow to justify taking a trade from a risk/reward perspective. In broader terms, we stillfind it imprudent to commit to CNH exposure against a backdrop of fundamental instability as the tug of war between Chinese officials and the markets continues. As such, we will stand aside.

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