USD/CNH: A drop below 7.2600 remains in the pipeline – UOB

A move to the sub-7.2600 region in USD/CNH should not be ruled out, comment Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: After USD fell sharply on Wednesday, we indicated yesterday that “despite the relatively large decline, downward momentum has not improved all that much.” We held the view that USD “is likely to grind below 7.2600.” We were also of the view that “the next major support at 7.2390 is unlikely to come into view.” Instead of ‘grinding below 7.2600’, USD dropped to 7.2609 before snapping back up to end the day at 7.2903 (+0.27%). Downward pressure has eased, and USD has likely entered a consolidation phase. Today, we expect USD to trade in a range of 7.2750/7.3080.

Next 1-3 weeks: Yesterday (14 Sep, spot at 7.2740), we highlighted that “downward momentum has increased, and USD could break below 7.2600.” We indicated, “the next support level is at 7.2390.” USD then dropped to 7.2608 before rebounding. We continue to hold the same view. That said, oversold short-term conditions suggest USD could consolidate for a couple of days before heading lower. On the upside, if USD breaks above 7.3200 (no change in ‘strong resistance’ level), it would indicate that the current downward pressure has faded.