USD/CNH: Declines could be relatively limited – UOB Group

Further US Dollar (USD) weakness appears likely; oversold conditions suggest declines could be relatively limited. In the longer run, sharp decline has resulted in increase in momentum; USD is likely to continue to weaken, potentially to 7.0100, UOB Group FX strategists Quek Ser Leang and Peter Chia note.

USD is likely to continue to weaken, potentially to 7.0100

24-HOUR VIEW: “Levels to watch are 7.0380 and 7.0270. Last Friday, we held the view that ‘there is scope for USD to break below 7.0600, but the next support 7.0500 is unlikely to come into view.’ The anticipated weakness exceeded our expectation as USD plummeted to a low of 7.0387, closing on a weak note at 7.0432 (- 0.41%). While further USD weakness appears likely today, oversold conditions suggest any further decline could be relatively limited. The levels to watch are 7.0380 and 7.0270. To maintain the momentum, USD must remain below 7.0610 with minor resistance at 7.0530.”

1-3 WEEKS VIEW: “We turned negative in USD last Friday (20 Sep, spot at 7.0700), indicating that it ‘is likely to trade with a downward bias towards 7.0500.’ While our view was not wrong, the subsequent sharp selloff that sent it to a low of 7.0387 was surprising. Not surprisingly, the sharp decline has resulted in further increase in downward momentum. USD is likely to continue to weaken, potentially to 7.0100. On the upside, a breach of 7.0770 (‘strong resistance’ was at 7.1100 last Friday) would mean that USD is not weakening further.”