USD, CNH, US Dollar, Chinese Yuan, USD/CNH - Technical Outlook:
- USD/CNH’s downward momentum is accelerating.
- Potential for a short-term pause amid the broader downtrend.
- What are the signposts to watch?
USD/CNH TECHNICAL FORECAST –BEARISH
Accelerating downward momentum raises the likelihood of a further fall in USD/CNH. However, deeply oversold conditions point to a short-term pause before the resumption of the downtrend.
USD/CNH, down over 8% since October, last month fell below key support on a horizontal trendline from early October that came in at 7.01, triggering a bearish head & shoulders pattern (the left shoulder at the September high, the head at the October high, and the right shoulder at the November high), pointing to a decline toward 6.65.
USD/CNH Daily Chart
Chart Created Using TradingView
Cracks in the USD/CNH rally became evident after the pair in November failed to clear major resistance on a slightly upward-sloping channel from 2018, slightly above the 2019 high of 7.20, first highlighted in early November. The subsequent break of key support levels confirmed that the uptrend was beginning to reverse (see previous update). Extreme low readings of the 14-day Relative Strength Index (RSI) reaffirm that the trend has turned down (see Daily chart).
USD/CNH Monthly Chart
Chart Created Using TradingView
While the broader trend remains down, USD/CNH is looking deeply oversold, raising the chances of a short-term pause in the slide/minor rebound (see the Monthly chart). On the Weekly chart, USD/CNH is approaching quite strong support on the 89-week moving average and the 200-week moving average. Previous corrections in recent years have been truncated around the 89-week moving average, and instances, where the moving average was broken, were followed by major trend reversals.
USD/CNH Weekly Chart
Chart Created Using TradingView
Any rebound is likely to encounter resistance initially around 6.85 (the 200-day moving average), followed by a stronger hurdle at the early-December low of 6.93.
--- Written by Manish Jaradi, Strategist for DailyFX.com
