Chart of the day: Yuan still volatile

Over the past year, observed volatility has kept above its long-term mean, possibly explaining increasing volumes since February. These back the trend of yuan weakness against the US dollar, a move reinforced by last week’s hammer candle and Monday’s opening gap higher. Long-term moving averages have helped support the move, as did bullish momentum, both of which remain the case. Because the dollar is no longer overbought, we feel the next leg higher of this important rally has started. Investors should pencil in a squeeze to 6.81 to 6.83 yuan, at which point we would be back to June 2010’s level and a rate that has held for the 24 months before that.

Nicole Elliott is a technical analyst