Higher low on USD/CNH hints at countertrend bounceYield differentials between the US and China 2-year treasury note continue to suggest USD/CNH could be oversold, at least over the near-term. The daily close chart (above in black) also better shows the potential for a higher low, as part of a countertrend move.
The daily candlestick chart shows a recent pullback has failed to retest the 6.6976 low, and yesterday formed a 2-bar bullish reversal pattern (bullish piercing line). Whilst prices remain within a small retracement channel, we’re now looking for a break higher and minimum move to the highs around 0.6800 (near the monthly pivot point, 100% projection and recent highs).
Should it break higher, then the it has the potential to extend to the 138.2% or 161.8% projection levels, the latter of which is by the 200-day EMA.
Further out, I doubt Beijing will want their currency to depreciate too much given weak export data, so its possible the anticipated move higher is simply a countertrend move which could later break to new cycle lows.
