USD/CNH is turning bullish, according to George Davis, Chief Technical Strategist at RBC Capital Markets.
Davis says a descending channel pattern has defined the downtrend in USD/CNH since April 2021 (see Chart). However, the recent rejection of the 6.3000 area points to an erosion in bearish momentum as prices have failed to return below the mid-point of the channel. Furthermore, the subsequent rally has just pierced the descending channel top at 6.3939 (on 19 April).
The resulting bullish trend reversal points to a shift in sentiment according to Davis – with an old double bottom from September 2021 at 6.4244 serving as an initial target for the breakout. Above this level, the 50% retracement of the April 2021 to February 2022 decline, at 6.4468, will come into view, followed by 6.4644. Additional resistance is located at 6.4800 (61.8% retracement) and 6.4880.
If the channel breakout is valid, then Davis says pullbacks to support at 6.3939 and 6.3703 should now attract buying interest, though a daily close below the recent low at 6.3452 would dent the bullish backdrop.