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USD/CNH faces some consolidation in the near-term, but it also risks a probable drop to the 6.8000 area in the next weeks, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “We noted yesterday that ‘the rapid decline appears to be overdone and this coupled with oversold conditions suggest further USD decline is unlikely for today’. We held the view that USD ‘is more likely to consolidate and trade within a 6.8240/6.8420 range’. Our view was not wrong even though USD traded within a narrower range than expected (between 6.8225 and 6.8385). Momentum indicators are still mostly neutral and further consolidation would not be surprising. Expected range for today, 6.8200/6.8430 range.”

Next 1-3 weeks: “Yesterday (01 Sep, spot at 6.8480), we highlighted that ‘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’ and added, ‘we believe it is latter scenario’. We expected ‘the current weakness to extend to 6.8300, possibly 6.8160’. USD subsequently plummeted and quickly exceeded the 6.8160 level as it dropped to a low of 6.8143. From here, we continue to see risk for further USD weakness even though oversold conditions could lead to a few days of consolidation first. Only a break of 6.8800 (‘strong resistance’ level was at 6.8950 yesterday) would indicate that the current weak phase in USD that started about 2 weeks ago (see annotations in the chart below) has run its course. Until then, the roundnumber support level of 6.8000 is likely beckoning to USD.”

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