Chinese yuan strengthens slightly on Tuesday following the reopening of factories on Monday and workers returning to work. The threat of an accelerated spread of the coronavirus remains real however, and the impact on the Chinese economy is still very uncertain.
At the same time the perception is that Chinese authorities have had a serious response to the outbreak. Although economic growth will slow to some degree it’s still too early to assess an impact, especially given that the threat remains high.
The USD/CNY currency pair declined today by 0.017 or -0.24% to 6.9649, currently. This increases the chance for a deeper pullback in the pair than what we’ve seen over the past week.
So far, the USD/CNY has retraced a little more than a third of its prior advance, finding support at 6.9559 (now a swing low) last Thursday and bouncing. That bounce on Friday didn’t last long though as today’s closing price is going to be the lowest daily close in six-days. Nonetheless, price remains above the prior swing low and above the purple 21-day exponential moving average (ema) support line.
Price Levels for Deeper Pullback
If the USD/CNY falls further to below the 6.9559 swing low, then it is probably heading to at least the 50% retracement (green line) around 6.9308. That price level can be combined with the 6.9321 to create a support zone, as that’s where a measured move will have completed.
Measured Move – Downside Targets
A measured move is where the second leg down in a retracement matches the depreciation of the first leg down. In this case, the first leg down starts at the 7.0248 swing high, and the second leg down begins off the 7.0024 high.
In the case where price falls to below the 50% retracement zone, next watch for the 61.8% Fibonacci retracement level at 6.9096 (red line) to be reached.
Long-term Bull Trend Dominates
Given the longer term bullish price structure for the USD/CNY pair of higher swing highs and higher swing lows, the outlook remains bullish, once the current retracement is complete. However, if the pair falls to below the recent 6.8409 swing low, the bullish case is suspect and would have to be reassessed.
Signs of strength return if the pair can get above 7.0024, and then above 7.0248, with the higher level being more significant.
This article was originally posted on FX Empire
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