USD/CNY Price Forecast – Bull Signal for Pair as Chinese Yuan Hit Hard

The USD/CNY pair shows the first signs of breaking out of a declining trend channel as it rallies above the top channel line with conviction, reaching an eight-week high.

Price Correction Over

Support for the pair was found at 6.8409 on January 20, thereby completing a 61.8% Fibonacci retracement of the prior bull swing as well as a measured move or ABCD pattern. The decline started off the 7.1842 peak at the beginning of September, with the pair losing 4.78% of its value over the period.

Monday’s Move Signals Bulls Are Back in Control

Monday’s price action is a classic sign of a bullish continuation of a trend. The USD/CNY pair is now back above both the 200-day exponential moving average (ema) and 55-day ema after being below each for more than a month. Also, note that during the recent correction the 55-day ema was able to stay above the 200-day ema even though it got close to touching.

Nevertheless, when we step back a bit to look at the bigger picture on the chart, the outlook for the USD/CNY looks even better.

Continuation of Cup with Handle Pattern Breakout

In early August of last year, the USD/CNY broke out of a large cup with handle base, indicating that the overall trend in the pair should be bullish for some time. The recent correction was a classic pullback following an initial breakout to “test” a prior resistance zone to see if it now holds as support. Support for the retracement was found not too far below the previous high (6.9756) before price turned higher. In other words, the bears were not able to take the pair too low into the cup with handle pattern before price reversed, thereby confirming a higher swing low.

As of Monday, investor sentiment has clearly switched from bear to bull.

What’s Next?

Next watch for a move above the most recent swing high of 7.0733 to confirm strength followed by a test of the September peak. Thereafter, longer term targets would be the 127% extension of the most recent correction at 7.2776, followed by the 161.8% extension at 7.3964.