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USD/CNH could attempt some consolidation ahead of a potential move to 6.80, according to FX Strategists at UOB Group.

Key Quotes

24-hour view: “We expected USD to weaken yesterday but were of the view that ‘any weakness is likely limited to a test of 6.8300’. However, USD plunged to a low of 6.8143 before rebounding to end the day slightly lower at 6.8363 (-0.16%). The rapid decline appears to be overdone and this coupled with oversold conditions suggest further USD is unlikely for today. USD is more likely to consolidate and trade within a 6.8240/6.8420 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 tat 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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