Topping Probability Rising, Keep Shorting after a Rally

Summary:

Although the downward pressure on the economy has weighed on the RMB, the technical support is very strong. USDCNH seems to be building a top, and the attempt to continue to break through and rally is implausible.

SELL USDCNH

EXP

EXPIRED

7.30000

Entry Price

7.18000

7.41000

6.77508 -0.00459 -0.07%

Pips

EXPIRED

7.18000

7.17880

Exit Price

7.30000

Entry Price

7.41000

Fundamentals

Since the beginning of this year, in the background of the continuous tightening of the Fed, China's monetary policy has tended to be loose, in order to stabilize economic growth. The gap of the Sino-US interest rate inversion has continued to expand. Meanwhile, the frequent outbreak of pandemics in China has affected the recovery of the economy and export prospects, resulting in a sharp depreciation of the RMB.

However, in the context of weak global economic growth, speculations of the shifting Fed's policy recently continue to ferment, and the possibility of slowing interest rate hikes in the future is rising. The dollar has shown signs of reversing, as evidenced by Friday's sharp decline. On the other hand, China's economy is large and resilient. After China’s 20th Party Congress, the Chinese government will promote high-quality economic development actively, and strive to give full play to the effect of a series of measures to stabilize the economy. It is expected to consolidate the economic recovery and stabilize the RMB exchange rate, which may come out of a wave of appreciation in the future.

Technical Analysis

USDCNH: Topping Probability Rising, Keep Shorting after a Rally_2

Looking at the monthly chart, since the 2008 financial crisis, USDCNH has maintained a wide range of oscillations between 6.0-7.3. The broadening formation has a tendency to expand, but it is also close to the top of the channel. So there is still the probability that the rally will stay in the foot. Moreover, the daily chart has the potential to form multiple top structures with a high top divergence. The chances of peaking are rising, but will first maintain high fluctuations for a while.

USDCNH: Topping Probability Rising, Keep Shorting after a Rally_3

Trading at the 4-hour timeframe, USDCNH has staggered at its recent highs, and the strength of the rebound has weakened. In particular, after breaking above 7.30, the pressure increased sharply, with the characteristics of a slow rise and fast decline. Short-term fluctuations are increasing and it is recommended to go short at highs. Afterward, if the market breaks below 7.17, a further decline is expected towards the 7.00 mark.

It is feasible to go short when the price rallies to around 7.30. The target is set around the lower support of 7.18 and the stop loss is set above 7.37.

Trading Recommendations

Trading Direction: Short

Entry Price: 7.30

Target Price: 7.18

Stop Loss: 7.41

Support: 7.22/7.18

Resistance: 7.30/7.40

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