Dollar-yuan overbought at top of channel

AGAINST the backdrop of 2019, the market movement for dollar-yuan (USDCNH) remained largely muted for extended periods of time during the year, conveying sentiments of uncertainty from its participants.

Towards the end of February, USDCNH reached the year low of 6.6738 and remained in a narrow range for two months. Subsequently, prices broke up towards the 6.9625 level before getting trapped in a sideway market once again. Volatility remained relatively low until August before USDCNH started to surge upwards and peaked out at 7.1967 the following month. Past the inflection point, the pair has been in a consistent downtrend thereafter.

The impulse and retracement move of the downtrend lined up perfectly to form a channel. A channel is formed with parallel trendlines that connect peaks and troughs of prices highlighting the key support and resistance levels. In this case, the bottom band of the channel has been tested three times before rebounding off the supporting, and the top band of the channel has been tested twice before reversing lower from the resistance.