USD/CNH Forecast: Deeper pullback ahead?

Omkar Godbole FXStreet Contributor

The USD/CNH pair created a big bearish inverted hammer candle last week, signaling a temporary bearish trend reversal is likely in progress.

At press time, the pair is trading at 6.8425 - down 1.66 percent from the last week's high of 6.9584.

Weekly chart

The inverted hammer candle indicates the rally from the March low of 6.2353 has run out of steam and a bearish reversal would be confirmed if the current weekly candle closes below the last week's low of 6.8268.

The probability is high that USD/CNY will find acceptance 6.8268, as the 14-week relative strength index (RSI) is flashing overbought conditions.

Further, the daily chart below shows a large bearish relative strength index divergence. More importantly, the 5-day and 10-day MAs have topped out, validating the argument put forward by the bearish inverted hammer candle that a short-term bull-to-bear trend change is being charted.

Daily chart

View

USD/CNY risks falling below to (23.6 percent Fib retracement of 6.2353/6.9584) his week and could be in for a deeper drop to 6.68 (38.2 percent Fib retracement) if it closes below 6.8268 (previous week's low) on Friday.
The overall outlook remains bullish as long as the pair is holding above the trendline sloping downwards from December 2016 high and May 2017 high. At press time, the trendline support is seen at 6.6611 (also 100-week moving average).

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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