USD/CNH Analysis: Offshore Yuan is most oversold since December 2016

Offshore Yuan (CNH) sell-off is overdone, the USD/CNH 14-week RSI indicates.
The pair could revisit 100-week moving average (MA) support before resuming the rally to December 2016 high of $6.986.

Omkar Godbole FXStreet Contributor

Currently, the USD/CNH pair is trading at 6.795, having clocked a 12-month high of $6.8360 earlier today and is looking extremely overbought.

Weekly chart

The 14-week relative strength index (RSI) is at its highest level since December 2016, meaning the currency pair is most overbought (offshore Yuan is most oversold).

Daily chart

Both RSI and stochastic have not confirmed the higher high in USD/CNH exchange rate (bearish divergence), indicating the rally is running out of steam.

4-hour chart

The bearish price RSI divergence has been confirmed. Further, stochastic has generated a sell signal and is rolling over from the overbought territory.

View

Clearly, a pullback is overdue. That said, a technical correction could run into fresh bids around the 100-week moving average (MA) support of 6.6350 as the moving averages are biased towards the bulls. The 5-week, 10-week and 5-day, 10-day MAs are trending north.

More importantly, the descending broadening channel breakout seen in the weekly chart indicates the rally from the 2014 low of $6.01 has resumed. So, the long-run outlook remains bullish as long as the pair is holding above the channel. Multiple weekly closes back inside the channel would invalidate the long-term bullish view.

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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