USD/CNH risks extra weakness near term – UOB

The downward bias appears still in place for USD/CNH in the short-term horizon, note Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: Last Friday, we expected USD to drop below 7.1250. However, we indicated that USD “is unlikely to threaten 7.1000.” We added, “In order to maintain the momentum, USD must stay below 7.1700.” While USD dropped below 7.1250, it staged a relatively sharp rebound from 7.1240 (high of 7.1614). Downward momentum has eased, and this combined with oversold conditions suggests a low risk of USD weakening. Today, we expect USD to consolidate, likely between 7.1350 and 7.1800. 

Next 1-3 weeks: We highlighted last Friday (14 Jul, spot at 7.1485) that USD “is likely to continue to weaken and a break of 7.1250 will shift the focus to 7.1000.” While USD broke below 7.1250, it rebounded quickly from 7.1240. Oversold short-term conditions could lead to a few days of consolidation. In other words, 7.1000 may not come into view so soon. On the upside, a break above 7.1930 (no change in ‘strong resistance’ level from last Friday) would suggest that the USD weakness that started last Monday has stabilized.