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FX Strategists at UOB Group see the possibility of a deeper pullback in USD/CNH on a breach of the 6.9950 level.

Key Quotes

24-hour view: “While our view for USD to weaken was not wrong, instead of ‘edging lower to 7.0550’, USD sliced through 7.0550 and plunged to 7.0103. The sudden and sharp drop was unexpected as USD closed lower by a whopping -0.78% (7.0129), the biggest 1-day decline since December last year. While the rapid down-move appears to be running ahead of itself, further USD weakness would not be surprising and a break of the critical support at 6.9950 could potentially trigger further selling. Overall, only a move back above 7.0380 would indicate the current weakness has stabilized (minor resistance is at 7.0250).”

Next 1-3 weeks: “We have held the view that USD is trading in consolidation phase for about 3 weeks. The manner by which the consolidation phase comes to an end was unexpected as USD staged a sudden lurch lower and plummeted by –0.78% yesterday (NY close of 7.0103). Downward momentum has picked up and the risk is for further USD weakness from here. A daily closing below the weekly trend-line support at 6.9950 could potentially lead to further sharp loss as the next support of note is not until 6.9500. All in, USD is expected to remain under pressure unless it can move back above 7.0550.”