Chinese Yuan Technical Analysis: USD/CNH Trump Rally Rolls into US CPI

Chinese Yuan, USD/CNH Talking Points:

• USD/CNH has mirrored the Q4 rally in the US Dollar quite well, with a strong move developing over the past week on the back of Trump’s Presidential win.
• This week USD/CNH has been working on a 200-dma break and is fast nearing some points of resistance that bulls have had trouble leaving behind over the past couple years.

It was just over a month ago that USD/CNH looked like it could quickly break down. As the DXY move was stalling in late-September, the addition of Yuan strength led to a forceful move down to fresh yearly lows in the pair, testing below the widely-followed 7.0000 handle for the first time since May of 2023. But, as the tide started to shift for DXY at the Q4 open, so did the trend in USD/CNH.

Even coming into last week bears held some favor. Price remained below the 200-day moving average and the pullback on Monday and Tuesday in DXY made it look as though USD/CNH could push lower, with support showing at prior resistance, around the 7.1000 level.

But as the Wednesday rally took over in DXY, USD/CNH quickly jumped and re-tested the 200-day. And so far this week, that’s been the object of attraction from the daily chart as buyers have continued to chew through that resistance while showing greater control of near-term momentum.

USD/CNH Daily Chart

Chart prepared by James Stanley, USD/CNH on Tradingview

USD/CNH Momentum v/s Swings

The big driver for the USD is tomorrow’s CPI report and expectations are relatively high, with headline CPI expected at 2.6% against last month’s 2.4% reading and core CPI at 3.3% which would match last month’s print.

If the data comes out below expectations and a pullback shows in DXY trends, there could be an excellent opportunity to gauge just how aggressive bulls remain to be, and in USD/CNH, there’s now bullish near-term structure that could offer a telling look at upcoming trends and themes.

In USD/CNH, the big spot that would need to remain defended to keep that momentum tilted in bulls’ favor is the 7.2000 level, which is now confluent with the 200-day moving average. It’s the 7.2500 level that’s held resistance thus far and that makes sense as it could be an attractive spot for longs to have taken exposure off the table after a strong one-sided run. If sellers can dig below that level, however, particularly on a daily close basis, then it’ll start looking like a failure from bulls to hold the break of the 200-day moving average, and the weekly bar would show an extended upper wick indicating failure from buyers.

USD/CNH Four-Hour Chart

Chart prepared by James Stanley, USD/CNH on Tradingview

--- written by James Stanley, Senior Strategist