Chinese Yuan Strengthens on Trade Optimism
- USD/CNH sitting at crucial 7.00 level
- Massive technical support just below
- Scene of a major breakout
- Trade optimism entering market
USD/CNH is a currency pair that far too few retail traders pay attention to. This is to their detriment, as the pair has been crucial in determining the risk appetite of traders around the world lately.
With the US-China trade talks at the forefront of everybody’s mind, this is a currency pair that needs to be paid attention to. Recently, the value of the Chinese Yuan has increased, perhaps signaling a bit of optimism.
The technical analysis for this currency pair is rather interesting because we have so many crosswinds going on at the same time. While the US-China trade talks have calmed down a bit, and there is talk of a “Phase 1” signing, this helps the idea of more of a “risk-on” type of market. This means there should be more demand for Chinese goods, which should help the Chinese economy.
All things being equal, that should drive this market lower, as the US dollar is a safety currency. Also, if the Chinese economy is going to take a hit due to a lack of exports, that will obviously cause issues with money flow as well.
You could also make an argument for the 7.00 level as being a large, round, psychologically significant barrier that, once crossed, should offer support. So far, that’s exactly what we are seeing in this currency pair. The question now is whether or not we can hold this crucial significant and symbolic level.
The 200-day EMA sits just below, and that will attract a certain amount of attention in and of itself, making the idea of shorting this pair somewhat unpalatable in the short term. If we can continue to see the market hang on to this level, then it’s very likely that the 200-day EMA will, in fact, keep the uptrend intact.
The play going forward
Unfortunately, some of the trading will be done due to headlines and rumors. From a technical standpoint, as long as the pair is above the 7.00 level, one would have to think that traders are going to favor the upside. A break above the 7.06 level would confirm that the market is going to bounce quite a bit.
On the other side of the equation is a break below the 6.95 level, signifying trouble ahead and a significant break down to the 100% Fibonacci retracement level, which is currently found at the 6.81 level. All things being equal, we are winding the market up right now for a bigger move, and it will be interesting to see how this plays out.