May 4 (Reuters) - The yuan is taking a pause after strengthening against the dollar for a year, and technical analysis indicates that the Chinese currency can continue its gains once it catches its breath.
The yuan is currently in what technical analysts call a consolidation pattern, when prices hold relatively steady in a narrow range before picking a direction. During a trending market -- as the yuan has been in since April 2025 -- periods of consolidation are often followed by a resumption of the previous direction of travel.
The yuan went through a similar consolidation phase from late February until the end of March and then started strengthening again.
Foreign exchange charts of the Chinese currency are usually expressed in yuan per dollar. That means that the yuan strengthens as the price falls.
On April 14, the yuan hit 6.8062, its strongest level in more than three years, according to data supplied by LSEG. Since then it has traded in a range of 6.8062-6.8493 -- not gaining but not weakening very much either.
If the yuan price were to trade convincingly below 6.8062 and 6.8000, it would end the current consolidation period and signal a resumption of the Chinese currency's strengthening trend. In that case it would raise expectations in the market of a move toward 6.7000.
Prices such as 6.8000 and 6.7000 are what analysts refer to as psychological levels due to the tendency of markets to pause at big round numbers.
However, if the yuan were to retreat past 6.9050, market participants might see this as a potential change of direction.
What the chart shows:
The yuan hit its strongest in more than three years on April 14
Since then it has been consolidating, neither gaining nor weakening very much
The yuan went through a similar period of consolidation that ended on March 31
(Daily markets commentary from Reuters analysts on the signals financial charts are sending - and what they might mean.)
Christopher Romano is a Reuters market analyst. The views expressed are his own; Editing by Chizu Nomiyama
