USD/CNH risks a drop to 6.9500 – UOB

FX Strategists at UOB Group believe USD/CNH could slip back to the 6.9500 level in the next weeks.

Key Quotes

24-hour view: “We highlighted yesterday that USD ‘could test the 7.0200 resistance’ but held the view that ‘a sustained advance above this level is not expected’. USD subsequently touched a high of 7.0254 before dropping back down to close at 7.0122. The weak price action after opening this morning has resulted in a quick pick-up in momentum and from here, barring a move above 7.0150, USD could decline further but the prospect for a break of last week’s low at 6.9815 is not high (6.9950 is already quite a strong support).”

Next 1-3 weeks: “In our previous update from last Tuesday (07 Jul, spot at 7.0150), we highlighted that USD ‘is under pressure’. We added, ‘a daily closing below 6.9950 could potentially lead to further sharp loss’. USD subsequently dropped to a low of 6.9815 on Thursday (09 Jul) before closing at 6.9970. USD rebounded last Friday (10 Jul) and while downward momentum has been dented, only a break of 7.0390 (‘strong resistance’ level previously at 7.0550) would indicate that the current downside risk has dissipated. Until then, USD could weaken further to 6.9650 with lower odds for extension to 6.9500. Meanwhile, oversold shorter-term conditions could lead to a few days of consolidation.”