From the beginning of this month, we continue to see the Chinese offshore yuan slowly strengthening against its US counterpart. The hopes that the US and China are willing to get back soon to the negotiation table are helping the Chinese currency to rise against the US dollar. From the short-term perspective, we see that there is a decent likelihood for USD/CNH to continue moving south. That said, let’s not forget that the trade war has not disappeared anywhere, so the pair could easily reverse back up at some point again. But for now, as long as the rate keeps on balancing below the short-term tentative downside resistance line, we will remain somewhat bearish.
At the time of writing, we see that USD/CNH got held slightly above the 7.1065 hurdle, marked near the highs of August 13th and 23rd. If the bears continue to steer the way, a drop below that hurdle may clear the path to some lower support areas, one of which could be at 7.0830, marked by the low of August 23rd. The rate might stall around there, or even correct back up again. But as long as the pair stays below the aforementioned downside line, we will continue targeting slightly lower levels. This is when USD/CNH may drift to the 7.0830 obstacle again, a break of which could set the stage for a test of the 7.0720 zone, which acted as good resistance between August 19th and 21st. Also, that zone currently coincides with the 200 EMA, which may provide additional support.
Our oscillators, the RSI and the MACD, both are currently at their lows, indicating negative price momentum. The RSI is currently at around 30 and is pointing slightly lower. The MACD is below zero and its trigger line, and also points a bit to the downside. Both indicators seem to be in support of the above-mentioned scenario.
Alternatively, if the buyers decide to suddenly re-enter the game and push the pair above the previously discussed downside resistance line, this might be a positive sign for more buyers to step in. But for us to get comfortable with higher areas, a break of the 7.1510 barrier would be needed. This barrier marks the highs of today and yesterday. If we get that move, the next possible resistance zone could be around the 7.1770 obstacle, a break of which could attract more buying-interest and USD/CNH might drift further north towards the 7.1960 level, which is the high of this week.
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