Following a pullback to the 38.2% Fibonacci retracement area on Thursday, with a low of 6.9559, the USD/CNY currency pair reversed course on Friday, rallying to above Thursday’s high. That move triggered a 1-day bullish reversal in the pair and points towards higher prices.
Next Bullish Signal
Next, a daily close above the most recent swing high of 7.0248 will trigger a continuation of the bull trend that began off the 6.8409 low on January 20. Moreover, a breakout of a descending trend channel occurred on Monday.
A move above the recent swing high signals a continuation of upward momentum from that breakout. Given that the USD/CNY has been in a clear bull trend with higher swing highs and higher swing lows since the March 2018 bottom, upward momentum should improve.
Upside Price Targets
Certainly, we could eventually see the USD/CNY reach the 127% Fibonacci extension of the descending channel at 7.2776, and if price keeps rising, the 161.8% extension at 7.3964. But, first price needs to exceed the next two swing highs at 7.0733 and 7.1515, along with the top of the channel at 7.1842.
Also, watch the relationship between the 21-day exponential moving average (ema), the purple line on the chart, and the orange 55-day ema line. When the shorter 21-day line crosses above the 55-day line, it provides another bullish signal. Note that the 21-day line has been below the 55-day since early-November. Once a new leg of a trend begins, it tends to continue for some period of time.
Conversely, a drop below 6.9559 points to a deeper pullback before going higher. We could then see the USD/CNY fall to at least the 50% retracement at 6.9308, or the 61.8% Fibonacci retracement at 6.9096.
Fibonacci extension levels are measured off a prior swing. In this case, the declining trend channel that started at the 7.1842 high. The highest retracement shown on the enclosed chart is the 78.6% price level. If price retraces to above that price it eventually reaches the 100% retracement at 7.1842. A move above the 100% retracement is referred to as an extension.
This article was originally posted on FX Empire
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