The People’s Bank of China (PBOC) has recently been setting the yuan reference rate lower and pushing USDCNY higher. With the Chinese central bank set to let their currency depreciate further, USDCNY could be in a long-term uptrend with shallow retracements and opportunities to jump in the rally.
The pair has previously bounced off strong support around the 6.0500 major psychological support level in the past few months, breaking to the upside of its consolidation pattern in February when the PBOC started to widen the currency’s trading band. Recall that the Chinese central bank agreed to let the yuan float freely inside a trading band against the US dollar as part of its efforts to help rebalance the global economy.
At the moment, USDCNY is stalling at a technical level, which suggests that the uptrend might take a breather in the meantime as traders book profits off this inflection point. It is moving sideways close to the 6.1500 psychological level, which has held as resistance or an area of interest in the past.
USDCNY Technical Outlook
The weekly candle shows a bit of hesitation among bulls and bears, as it is forming a doji or spinning top pattern. This reflects indecision, as traders try to price in recent events and its impact on both currencies. After all, the tension in Ukraine has given enough support for the USDCNY pair but the improved situation has led to an unwinding of long dollar positions a few days back.
If the weekly or daily candle closes above the 6.1500 psychological level, it could be a sign that further gains for USDCNY are in the cards. The next visible and established resistance level is right around the 6.2000 major psychological round number. On the other hand, a selloff could lead to a test of the previous lows if there are enough bids for the Chinese currency, which appears to be an unlikely scenario in the near term.
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