Currency Pair of the Week: USD/CNH

Given the continued tensions between the US and China, it appears that the Yuan may continue to weaken.

Trade War (1)

As we discussed in this week’s “Week Ahead”, tensions are heating up between China and the US.  Last week, the US Senate passed a bill to increase oversight of Chinese companies operating within the US, including the highly publicized, ongoing conflict with Huawei Technologies LTD.  This may force some Chinese companies, such as BABA and BIDU, to withdraw from the NASDAQ.  In what began seemingly as a way to penalize China for keeping quiet regarding the origins of the coronavirus, has now turned into a conflict over security and human rights. 

China also announced plans for a new national security law in Hong Kong.  The new law would prohibit acts of treason, secession, and subversion against the Chinese government.  The US and pro-democracy in Hong Kong feel the aim is to suppress dissent.   Last year, there were many public protests in Hong Kong regarding China’s attempt to take control over Hong Kong, many of them ending violently.  With the US siding with Hong Kong, China is telling the US to “mind its own business” as this is a domestic problem and there is no need for the US to get involved.  However, tensions are rising quickly between the two countries and on Monday China went as far as saying the relationship is on the brink of a “Cold War”!

The worse the relationship gets between the US and China, the higher it seems that USD/CNH goes.  On a daily timeframe, the pair have formed an inverted Head and Shoulders pattern (with 2 left shoulders), which began in Autumn of 2019 after pulling back from new highs at 7.1777.  The target points to a new high near 7.2700 and just below the 127.2 % Fibonacci extension from the September 2nd, 2019 highs to the January 20th lows.  The RSI is diverging from price; however, it is still in neutral territory.

Source:  Tradingview, City Index

On a 240-minute timeframe, USD/CNH has formed a rising triangle formation and appears on the verge of breaking higher.  The target for a rising triangle is the height of the triangle added to the breakout point, which would put price near 7.3400.  Note that the RSI is diverging from price as well on the 240, however it is also still in neutral territory. 

Source:  Tradingview, City Index

Given the continued tensions between the US and China, it appears that the Yuan may continue to weaken.  With the inverted Head and Shoulders pattern on the daily timeframe and the rising triangle on the 240-minute timeframe, it seems that USD/CNH may be ready to breakout.

From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.