BTCCNY tumbled after testing the 5400.00 highs, likely on profit-taking ahead of the weekend. Monetary authorities in China have been scrambling to keep the value of their domestic currency weak in order to retain an advantage in international trade, which could then shore up demand for bitcoin as a hedge against these yuan holdings.
From a technical standpoint, the 1-hour time frame of BTCCNY shows an ascending channel pattern that’s forming. Price bounced off the resistance and is on its way towards testing support around the 4900-5000 levels.
Applying the Fib tool on the latest swing high and low shows that the 61.8% level lines up with the channel support, which also coincides with a former short-term resistance area. Price is already testing the dynamic support at the 200 SMA inflection point and a break lower could be an early signal of a pickup in bearish pressure.
For now, the 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. Bullish pressure appears to be fading and the short-term MA looks poised for a downward crossover, although the gap between the moving averages is still sufficiently wide enough to indicate that bullish momentum is in play.
RSI is making its way up from the oversold zone, featuring a bullish divergence since November 12. Price made higher lows since then while stochastic had lower lows. Similarly, stochastic is making its way up so bitcoin price could follow suit. Once these oscillators reach overbought levels and turn lower, selling pressure could return.
The Chinese government has reportedly set the yuan trading range lower once more in an attempt to engineer currency weakness. In fact, authorities have been at it for more than a a week already, increasing the pressure for Chinese investors to seek higher returns elsewhere.
Keep in mind that the inflow of funds from Chinese investors has been one of the primary factors spurring the bitcoin price climb over the past few months, taking BTCCNY and BTCUSD to its yearly highs. A brief pullback is expected on profit-taking at these levels, but sustained buying pressure could only attract more bulls on the dips.
Analysts have already dispelled the chance that the Chinese government could impose restrictions on bitcoin trading in the mainland, mostly highlighting the features of the BTC network and blockchain that would prevent anyone from controlling the number of units going in and out of a particular location. With that, bitcoin could see less resistance moving higher from here unless China takes stronger action in banning bitcoin, which seems like a very unlikely scenario.
Still, a break below this channel support could expose BTCCNY to further downside, especially if traders are starting to book profits off their trades for the year. Also keep in mind that this is a shortened trading week due to the Thanksgiving holidays in the US so the thinner liquidity could spur more volatile moves even before the weekend, possibly even by midweek before market players take off.