The US-China trade talks are taking place this week and given that analysts and investors believe that the negotiations might not result in a final deal between the two nations, the yuan has started slowly depreciating. Looking at the USD/CNH chart, we can see that since around mid-December, the pair had been trading below a downside resistance line, drawn from the high of December 21st. But on February 6th, the rate accelerated and broke through that line, which means that USD/CNH could continue moving further north.
A further push higher may drive USD/CNH towards the 6.810 hurdle, or even the 6.818 barrier, which is the high of January 22nd. The rate might get held there temporarily, but if the buying activity remains strong, this may give the opportunity for more buyers to step in. We could then target the next potential resistance zone, at 6.842, marked by the low of January 8th.
Taking a quick glance at our oscillators, the RSI continues to push higher, away from its 50 mark, towards the 80 zone. The MACD, after sitting below its trigger line for some time, has now moved above it and is pointing higher. Both indicators suggest that the momentum is picking up slowly, which supports the above-discussed idea.
Alternatively, a drop back below the 6.789 hurdle could make the bulls worry, as it may increase the chances for the rate to slide back to the 6.765 level, marked by today’s low. If the bears remain in the driver’s seat, USD/CNH could continue traveling lower towards the 6.752 obstacle, which is the low of February 5th. This is where the pair could test the aforementioned downside resistance line, which if not broken, may provide good grounds for a possible bounce. Only in the scenario where the line gets violated, we would consider further declines towards much lower levels.
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