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USD/CNY Price Forecast – Retracement to Test Support of the Breakout Area

Following a sharp one-day rally and pattern breakout on Monday, the USD/CNY pair pulled back Tuesday to test the breakout area as support. At the time of publication, the 6.9874 low for the day held right around support of the downtrend line and area of support of the 100-day exponential moving average (ema) (blue line).

Bullish Breakout is Long-term Positive

On Monday the USD/CNY pair broke out of a four-month descending channel as price moved above and closed above the top channel line. Also, on the same move the 100-day ema was exceeded to the upside around the same price. Further, the horizontal dotted blue line on the enclosed chart marks the previous swing high from the end of October 2018. That’s another piece of evidence that strengthens the bull case.

What Happens Next Will Be Telling

A decisive advance above Monday’s high of 7.0248 signals a continuation of the bull move that began off the 6.8409 swing low two weeks ago. It also signals a continuation of the larger bull trend that began off the March 2018 bottom. Nevertheless, as price progresses, we should see additional evidence for the bullish move.

New Evidence Needed as Price Advances

There are a few things we should watch going forward for new evidence of strength. First, a daily close above the most recent swing high within the descending trend channel provides further confirmation for a bullish reversal of the downtrend. That swing high is at 7.0733.

Next, we can watch for the 100-day ema to start to move up again. Of course, a variety of other moving averages can be added to your chart to look for bullish crossovers.

Intraday Developing Pattern

This next chart below is a 4-hour intraday chart that takes a closer look at recent price action. Here, you can see that today’s retracement found support around the 38.2% Fibonacci price level and support of the line was around the same price.

It’s not clear that today’s low will continue to hold, and other Fibonacci levels are added to the 4-hour chart in case price pulls back further over the coming days. Watch for a break below 6.9874 to indicate a deeper retracement.

This article was originally posted on FX Empire

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