USD/CNH: Downward pressure picks up traction – UOB

USD/CNH risks a potential pullback to 7.2600 once it breaches 7.2800. comment UOB Group’s Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia.

Key Quotes

24-hour view: We expected USD to strengthen yesterday, but we were of the view that it “is unlikely to threaten the major resistance at 7.3400.” We clearly did not expect the ‘sudden’ sharp selloff that sent it plunging by 0.41% (NY close of 7.2915). While the sharp drop appears to be overdone, there are no signs of stabilisation yet. Today, USD could decline towards 7.2800, but it is unlikely to break below this major support level. Resistance is at 7.3050; a breach of 7.3105 would indicate that the decline in USD has stabilised.

Next 1-3 weeks: Our latest narrative was from last Thursday (21 Sep, spot at 7.3150), wherein the recent downward pressure has faded, and USD is likely to trade in a range, probably between 7.2800 and 7.3400. Yesterday, USD fell sharply by 0.41% (NY close of 7.2915). Downward momentum is beginning to build. However, USD has to break and stay below 7.2800 before a sustained decline is likely. Looking ahead, if USD breaks clearly below 7.2800, it could trigger a rapid drop towards 7.2600, potentially below this level. Conversely, if USD breaks the ‘strong resistance’ at 7.3200, it is likely to continue to trade in a range