- The US dollar has initially tried to rally a bit during the course of the trading session on Friday as we continue to see a lot of noisy behavior in this market.
- That being said though, the market is likely to continue to see a lot of volatility and it is probably worth noting that the moving average just above the 50 day EMA is going to cause quite a bit of resistance.
- Beyond that we have the 7.1250 level that I think comes into the picture as a bit of a ceiling as well.
While I don’t necessarily know that it would be impossible to break through, it obviously would have a little bit of “market memory” attached to it. Furthermore, you also have to see what the Chinese authorities would have to say.
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If the US dollar were to break above there, we would probably have a major risk off type of event going on as this pair tends to rise with concerns about the global economy and fall with liquidity measures and more of a risk on attitude. If we fall from here, the market could very well drop down to the 7.05 level, possibly even down to the 7.0 level.
I do expect to see a lot of support in that area, so it'll be interesting to see how this plays out, because clearly the People's Bank of China does not want to see the Chinese Yuan strengthen too much. As a general rule, they like the idea of staying above the seven level in this currency pair, so that'll be interesting to see. The technical analysis is most certainly negative in this pair at the moment, so I would anticipate that selling pressure probably comes into the picture sooner rather than later. This doesn’t necessarily mean that the US dollar gets eviscerated everywhere, because remember, the Chinese yuan is a strange and unique animal in and of itself.
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