USD/CNY Bullish Pennant Pattern Points to a Jump to 6.800

The USD/CNY price has held steady in the past few days even as the US dollar strength accelerates. The USD to CNY exchange rate is trading at 6.7180, which is slightly below this week’s high of 6.7375. Still, this price is about 6.55% above the lowest level in 2022.

China slowdown

The Chinese yuan has dropped against the US dollar as investors watch the weakness of the country’s economy. While the country expanded by 4.8% in the first quarter, analysts believe that the country contracted in Q2 because of the lockdowns. 

At the same time, analysts expect that Chinese exports will start slowing down as countries start reshoring, where they move some of their manufacturing from China. Still, this transition away from globalization will take a longer period to become real.

The USD/CNY has also risen because of the divergence between the Federal Reserve and the PBOC. While the Fed has embraced a more hawkish tone, the PBOC has moved to ease financial conditions. The Chinese central bank has left interest rates unchanged. And in a recent statement, the bank’s governor said that it “will continue to be accommodative to support economic recovery in aggregate sense.”

The Fed, on the other hand, has embraced a more hawkish tone. It has already hiked interest rates by 150 basis points and hinted that it will continue hiking in the next few months. As a result, the dollar index has surged to the highest level in more than two decades.

USD/CNY forecast

The daily chart shows that the USD/CNY pair has been in a tight range in the past few days. It has remained above the 25-day and 50-day moving averages. At the same time, the pair has formed a bullish pennant pattern that is shown in blue. The Average Directional Index (ADX), which is a measure of trend strength, has dropped.

Therefore, with the bullish pennant nearing its peak, there is a likelihood that it will soon have a bullish breakout in the near term. If this happens, the next key resistance point to watch will be at 6.808, which was the highest point this year. A drop below the support at 6.70 will invalidate the bullish view.