Exactly a month ago, we warned those aggressively selling the offshore yuan against the US dollar that they were in for a shock. Last week, they got an even bigger one as volatility soared while volume dropped from December’s record high. A second weekly bearish engulfing candle adds weight to our view that an interim high is in place and prices should move broadly sideways at about 6.89 over the coming year. This should be the buying time for the offshore yuan and for mainland rates to move back into line. The first Fibonacci support held last week but a dip to trend-line support and the psychological 6.70 level (the 50 per cent retracement area) cannot be ruled out. However, a drop below 6.64 is unlikely.
