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FX Strategists at UOB Group suggested USD/CNH could drop further and test the 6.8300 area in the next weeks.

Key Quotes

24-hour view: “We highlighted yesterday USD ‘could dip below 6.8500 but odds for a break of the major support at 6.8460 are not high’. However, USD managed to edge below 6.8460 and touched before recovering slightly to end the day slightly lower at 6.8470 (-0.16%). Despite the breach of the major support, there is no ‘spark’ as USD traded in a relatively quiet manner. From here, USD could edge lower but any weakness is likely limited to a test of 6.8300. Resistance is at 6.8580 followed by 6.8760.”

Next 1-3 weeks: “The negative phase that started about 2 weeks ago is still clearly intact. In our latest narrative from last Thursday (27 Aug, spot at 6.8790), we highlighted that ‘the next support level of note is at 6.8460’. This is a solid support and while USD ‘cracked’ this level yesterday (31 Aug), there was hardly any follow-through (low of 6.8436). Such lackluster price actions upon a breach of major support indicates either USD is not ready for further losses or it is biding time for a more aggressive decline later on. For now, we believe it is latter scenario. In other words, we continue to hold a negative USD view and anticipate the current weakness to extend to 6.8300, possibly 6.8160. Overall, the negative USD view is deemed as intact as long as USD does not move above the ‘strong resistance’ at 6.8950 (level was previously at 6.9180).”

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