USD/CNH technical analysis: Looks south after a failed flag breakout

• USD/CNH's daily chart shows a failed bull flag breakout.
• Rising Fed rate cut odds support the case for stronger correction in USD/CNH.

USD/CNH is trading on the defensive this Tuesday morning in Asia and could drop to the May 27 low at 6.8973 in a day or two, having failed to capitalize on the bullish price action seen last week.

The currency pair closed at 6.9366 on Friday, confirming a bull flag breakout - a bullish continuation pattern. The follow-through, however, was bearish with the pair falling back to 6.92 on Monday, invalidating the bullish breakout.

The failed breakout may have opened the doors for a deeper sell-off to 6.8973. The pair is currently trading at 6.9164.

The bearish case looks stronger if we take into account the rising odds of Fed rate cut. The Fed funds futures market suggests a better than 50-50 chance that the central bank will announce an interest rate cut at its meeting in July, according to the Wall Street Journal. 

Daily chart

Trend: Bearish

Pivot levels

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