The USD/CNH may be retested further upwards. The pair is just under the 0.6800 mark, where almost the entire rally this year has been hidden. If the resistance at this level breaks, we will see a new high for 2019 and a potential breakout of the rising-wedge pattern on its 4-hour chart (see chart below). In other words, a powerful wave up could come soon to drive up stocks as well as commodities.
If the USD/CNY tops out again next to the recent peak at around 0.6750, expect it to test a resistance level of around 0.6800, which is the area with more significant resistance in recent action – and the swiftest wave up since mid-April this year already reached this level before coming back down again to retest it 10 days later.
The USD/CNH rose above the 0.6800 mark this week, with the IF wave still ongoing from that low in the 0.6570s – and last seen having completed A, B and C waves. It is now in D-wave territory beginning a rise in W4, which would be for the more purposeful move higher and would resume the bull trend seen this year as well as carry on to new highs later on.
Short-range of movement is likely to take the pair back below 0.6750, where the B wave low was formed only last month. If this happens before a breakout, we could see a test of the 0.6650s level as support – and then for a rally to test the 0.6800s level itself as resistance and beyond, which is the area with more significant resistance in recent action – and where swiftest up since mid-April this year already reached this level before coming back down again.
Why is USD/CNY bullish for the market?
The USD/CNY has been aggressively rising over the past 10 days, owing to a slower pace of economic growth in China. This may benefit the markets, due to increased demand for commodities and equities as well as other assets such as gold (which have traditionally seen gains in sync with the performance of China) – and also hit local money markets during this time.
The slower Chinese growth is also likely to be seen as a good thing for the US and global economy, due to the impact it will have on market demand for goods. In addition, it may lead to a faster pace of interest rate rises in the US (as seen in the Fed’s recent move to raise its rates on Thursday) – which would be a positive for those invested inequities.
How did I know this?
The USD/CNY is currently between two rising wicks that started within a couple of weeks of each other. The market has been heading up at a similar pace over the past 10 days, and so it is likely to continue moving upwards for the time being – due to a weaker yuan.
The pair was also testing support at the 0.6750s level during a recent corrective wave that was considered to have completed A, B and C waves. On the 10-day chart, it broke through both resistance and support – on the way up, before building a strong trend. An increase in demand for commodities (as mentioned earlier) is likely to be related in some way to such a trend.
The pair could test both the 0.6650s level again as well as stronger resistance at 0.6800, which is where more significant resistance in recent action – and where swiftest up since mid-April has already reached this level before coming back down again.
The pair may retest the 0.6750 level in a bit more detail before going on to reach the 0.6800s as its next goal, which is where we will see a potential breakout of its rising-wedge pattern on its 4-hour chart – where this formation could be fulfilled by pushing far enough higher than it did back in April. In other words, expect strong gains coming up in USD/CNY and equities – with potentially commodities as well.