We’ve heard a lot about the CNY devaluation causing capital flight and hence demand for bitcoin, so on and so forth. It’s also true that the USD is strengthening relative to most if not all currencies, not just the CNY. It’s unclear to me in regards the bitcoin price, if the driver is the CNY weakening or the USD strengthening.
Recently, there’s been noticeable respect for horizontal resistance levels for both currencies in both charts. Horizontals are very basic technical analysis tools sure, but in my opinion they are useful in examining behavior at key levels. These are my basic horizontals.
I’ll zoom in on the price action since the June highs of this year. First, take a look at the horizontal resistance resulting from the Bitfinex hack at the end of July. The exchange rate on that date was 6.6350 CNY/USD. The bitcoin CNY price started retesting that level on 10 Oct for 11 days. The USD price respected the CNY resistance and consolidated here too, well below its corresponding resistance.
When we finally broached that CNY resistance on 21 Oct, the price quickly moved up to the corresponding USD resistance and consolidated on both charts. The USD resistance finally broke on 25 Oct with the exchange rate at 6.7804 CNY/USD, 2.2% higher than at the time of the hack and the forming of that resistance.
Ok, maybe this isn’t earth shattering. It’s just typical floating exchange rates. But what I think is interesting is that the price predictably respected both levels on both charts.
Now let’s take a look at the current price action. The CNY resistance was reached on 2 Nov and we have been consolidating since. The USD price again respected the CNY resistance. I’ve used a diagonal line that could represent a constant devaluation of the CNY exchange rate since June. This morning we broke the June CNY resistance but are still below the corresponding USD resistance. The exchange rate is 4.4% higher than the June high. If the price again respects both the CNY and the USD horizontals, I expect a quick move up to the horizontal USD resistance, consolidate there for a couple of days before breaking it just like in Oct.