USD/CNH Price Forecast: Sticks to gains around 7.270 on stronger USD; not out of the woods yet

• USD/CNH rebounds from a near two-month low and draws support from a combination of factors. 
• The disappointing Chinese PMIs undermine the CNH and act as a tailwind amid modest USD strength.
• The technical setup warrants caution for bullish traders and before positioning for any further gains.

The USD/CNH pair attracts fresh buyers at the start of a new week and reverses a major part of Friday's slide to the 7.2345 area, or its lowest level since late November. Spot prices currently trade around the 7.265-7.270 region, up 0.35% for the day, and draw support from a combination of factors.

The disappointing release of the official Chinese PMI prints earlier this Monday fueled concerns about the fragile recovery in the world's second-largest economy and weighs on the domestic currency amid trade war fears. Moreover, a goodish US Dollar (USD) bounce from a one-month low touched on Friday turns out to be another factor acting as a tailwind for the USD/CNH pair during the Asian session.

From a technical perspective, last week's breakdown below the 7.3200 mark, or the 50-day Simple Moving Average (SMA), was seen as a key trigger for bearish traders. Moreover, oscillators on the daily chart are holding in negative territory and are still away from being in the oversold zone. This suggests that the path of least resistance for the USD/CNH pair is to the downside and supports prospects for the emergence of fresh selling at higher levels. 

Hence, any subsequent move up could be seen as a selling opportunity and runs the risk of fizzling out quickly near the 7.3200 mark. A sustained strength beyond, however, might trigger a short-covering rally and lift the USD/CNH pair toward the next relevant hurdle near the 7.340-7.350 zone. This is closely followed by the December swing high, around the 7.370 area, which if cleared should pave the way for further gains. 

On the flip side, the 7.245-7.235 area, or a nearly two-month low touched on Friday, could protect the immediate downside. A convincing break below could pave the way for a fall towards the 7.200 round figure en route to the 7.165 intermediate support and the 7.145 region.

USD/CNH daily chart