The EURCNH currency pair opened the final session of the week relatively neutral in response to the latest economic updates from China. The world’s second-largest economy posted year-over-year inflation at -0.3%, remaining in the deflationary zone despite outperforming expectations set at -0.4% compared to the previous -0.5%. On a monthly basis, inflation reached 0.1%, but it fell short of the anticipated 0.2% consensus. This underscored the ongoing challenges in stimulating demand amid the country’s ongoing recovery struggles.
Looking ahead, the upcoming week promises an additional dose of excitement, featuring multiple economic data releases from both economies. Notably, Eurozone inflation data will take centre stage in the week’s lineup of events.
Technical
On the 4H chart, the ascending channel is holding firm as the currency pair continues to retrace the prior selloff and is fast approaching the Fibonacci midpoint at 7.8781. The 25-SMA (green line) has crossed above the 50-SMA (blue line) and the 100-SMA (orange line), confirming the bullish presence, and with volumes remaining stable, the uptrend could continue into the upcoming sessions.
Resistance at 7.8781 will be crucial, as a breakthrough could set the pair up for convergence with the 61.8% Fibonacci golden ratio at 7.8956. At this level, the dynamic resistance of the channel is at risk, and an additional breakthrough could result in the currency pair forming new higher highs at 7.9003 and 7.9096 in the upcoming sessions.
However, failure to exceed the 7.8781 resistance could trigger a pullback toward 7.8587, where the 25-SMA somewhat converges with the dynamic channel support. A breakdown could signal a significant shift in momentum, potentially pushing the currency pair below the 100-SMA toward 7.8474, where the 50-SMA could hold some buyers.
Summary
After a relatively muted reaction to the latest Chinese inflation data, the ascending channel is holding firm for the EURCNH currency pair. As we advance, the resistance at 7.8781 could be crucial in determining whether the current trend will be sustained or the channel support will soon become vulnerable.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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