Is USD/CNH about to Reverse and Head towards New Highs?
Joe Perry November 1, 2019 7:54 PM
USD/CNH has been very fickle when it comes to headlines regarding the US-China trade war.
According to Wikipedia, “The Elliott wave principle is a form of technical analysis that finance traders use to analyze financial market cycles and forecast market trends by identifying extremes in investor psychology, high and lows in prices, and other collective factors”. To put it simply, the Elliott wave principal involves 5 impulse waves and 3 corrective waves, with each wave having its own rules and personality. For purposes of looking at USD/CNH, it appears current price structure is in Wave 4 and may have one more wave higher to complete the 5-wave impulsive pattern before putting in the 3 corrective waves. One thing to note about the “rules” of wave 4 is that it cannot move back into the area of wave 1. If so, the pattern is negated. Price is currently trading at 7.0436. The wave 1 high is 6.9430….so price still has room to work with.
Source: Tradingview, FOREX.com
Other technical tools show that USD/CNH has just broken the upward sloping trendline from April 18th yesterday. However, price has not moved lower and is putting forming its 2nd straight daily candlestick doji, a sign of indecision. This may indicate price could move higher, posting a false breakdown.
On a 240-minute chart, USD/CNH is holding horizonal support from the lows on September 13th. Within wave 4, price is currently trading in a descending wedge pattern, which theoretically should break to the upside and target the top of the wedge, which is 7.1125.
Source: Tradingview, FOREX.com
If price does break higher and reach the target of the wedge, there is also horizontal resistance in the area. Above there, resistance comes in at the wave 3 highs of 7.1913, which will put price well on its way towards completion of wave 5. If price breaks and fails to hold the falling trendline from the descending wedge near 7.0236, the wedge pattern will be negated. Below that is long-term horizonal support at 6.9879, and then ultimately the top of wave 1 at 6.9430.
As we have seen lately, USD/CNH has been very fickle when it comes to headlines regarding the US-China trade war. Elliott wave theory is just another way to give structure to the underlying psychology of price movement. Watch for more headlines over the weekend as President Trump and President Xi try to find a date and location to sign Phase One of the ongoing negotiations.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.