In opinion of FX Strategists at UOB Group, USD/CNH risks a potential move to 6.9050 in the next weeks.
24-hour view: “We highlighted yesterday, ‘the sharp and rapid decline is severely oversold and further sustained weakness is unlikely for today’. We added, ‘USD is more likely to consolidate and trade between 6.9300 and 6.9500’. Our view was not wrong even though USD traded at slightly higher range than expected (between 6.9330 and 6.9533). The current movement is still view as part of a consolidation phase and USD is likely to continue to trade sideways for today, expected to be within 6.9350/6.9550 range.”
Next 1-3 weeks: “Our latest narrative was from Monday (03 Aug, spot at 6.9850) where we highlighted that ‘the downside risk still appears to be higher’ and added, ‘USD has to crack and close below the July’s low of 6.9645 before a sustained weakness can be expected’. While we are aware that 6.9645 is a critical support, we did not quite anticipate the sharp sell-off upon the break of this level (USD cracked 6.9645 and plunged to a low of 6.9325 yesterday). The current movement is viewed as the start of a negative phase and a break of the next critical support at 6.9300 could lead to a quick move to 6.9050. Resistance is at 6.9550 but only a break of 6.9730 (‘strong resistance’ level) would indicate that our view is wrong.”