The USD/CNY saw low volatility today with the narrowest trading range since activity levels picked up seven days ago, following Chinese New Year holiday. Support for the day was seen at 6.9590, right at the top of the 21-day exponential moving average line (ema). Currently, the USD/CNY is at 6.970, up 0.0058 or 0.08% for the day.
China Impacted by Virus
Although the number of people believed to be infected coronavirus in China has skyrocketed
to more than 44,000 confirmed cases, China reported the lowest number of new cases since January today. There have been over 1,100 deaths reported from the virus.
On Thursday this week, China will release Foreign Direct Investment (year to date) numbers. This is the first time the data will be updated since the coronavirus outbreak began and may help investors get a better handle on growth expectations for the Chinese economy.
Then, on Friday, China and the U.S. are scheduled to lower tariffs on billions of dollars of imports, as part of the first phase of the trade deal signed last month.
Key Price Levels
Key price levels to watch in the near-term are support at 6.9559, 5-day low, and resistance at 7.0024. A move through the bottom will trigger a continuation of a measured move correction off the 7.0248 swing high.
The USD/CNY will then head towards the 50% retracement zone around 6.9308. Also, at that point, a measured move will have completed where the second leg down from the 7.0248 high will match the price decline of the first leg down.
The first leg down starts at 7.0248. A measured move is a classic pattern in technical analysis that appears frequently in financial markets.
If price continues below the 50% retracement, then support might next be seen around the 61.8% Fibonacci retracement at 6.9096.
Dominant Bull Trend
It’s important to keep in mind the larger dominant price structure for the USD/CNY pair. A long-term bull trend remains and once the currently shallow correction completes, the dominant pattern should again kick in.
As of February 3, the USD/CNY has broken out of a descending trend channel as it went above the top channel trend line and closed above it on a daily basis. Yet, to date there has been no follow-through. At this point a failure of the breakout could occur.
Signs of strength will be needed to indicate that upward momentum from the breakout may be returning to help propel price higher. The first sign of strength is on a rally above 7.0024 and then above 7.0248, with a move beyond the higher price needed to trigger a continuation of the channel breakout.
This article was originally posted on FX Empire
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