USDCNH turns lower but uptrend looks likely to kick in again

The PBoC have chosen to intervene in a bid to support their ailing currency, setting their 'fixing' above levels expected by markets. Unfortunately, these steps have had minimal benefit, with markets aware that we are likely to see further USDCNH upside given the significant interest rate differentials between the two nations. With inflation barely evident within China, their central bank have had little option but to remain accomodative. This comes to the detriment of the Yuan, which only recently hit a seven-month low against the US dollar. Much like the situation in Japan, intervention can go one of two ways. It can highlight the risk of shorting their currency, warning speculators that intervention could spark a reversal at any moment. However, there is also a chance that market participants view the intervention as largely blunt, signalling expectations of further downside to come.

Looking at the hourly USDCNH chart, we can see that price is falling back into a confluence of trendline and Fibonacci support (61.8%). This brings a potential opportunity for bulls to once again look for an rebound to maintain the uptrend. A break back below the prior swing-low of 7.25 would bring about an end to the bullish trend that has held for the past two-weeks. It would also mark the exit of a rising wedge formation. With the uptrend on our side, long positions are favoured around the 61.8% Fibonacci support level. A break out of this pattern of higher lows would be required to negate this bullish short-term outlook.