USD/CNH: A drop to 6.3800 is not ruled out – UOB

USD/CNH remains offered and could ease to the 6.3800 region in the next weeks, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “Yesterday, we highlighted that ‘the outsized drop appears to be overdone but there is room for USD to test 6.4300 first’. We clearly did not anticipate the sharp plunge in USD that sent it to a low of 6.4127. While downward momentum is beginning to wane, it is too early to expect a sustained recovery. That said, in view of the rather oversold conditions, any weakness in USD could be limited to a test of 6.4000. Resistance is at 6.4500 followed by 6.4660.”

Next 1-3 weeks: “While our expectation for USD to weaken was correct, we did not quite anticipate the pace of the decline as it dropped sharply to a low of 6.4127. As highlighted yesterday (05 Jan, spot at 6.4500), the next support is at 6.4300 followed by 6.4000. In view of the vastly improved momentum, a break of 6.4000 would not be surprising and would open up the way for a move lower to 6.3800. All in, USD is expected to remain weak as long as it does not move above 6.4950 (‘strong resistance’ level was at 6.5100 yesterday).”