USD/CNH risks a deeper pullback – UOB

Quek Ser Leang at UOB Group’s Global Economics & Markets Research assesses the prospect for USD/CNH.

Key Quotes

“In the FX Technical section of our Quarterly Global Outlook published on 19 Mar 2021 (when USD/CNH was trading at 6.4980), we held the view that ‘the recovery in USD/CNH has plenty of room, both price and time-wise to extend further even though the major resistance at 6.6700 could be out of reach’. We added, ‘a break of 6.4400 would indicate that USD/CNH is not ready for a recovery’.

“While our expectation for a recovery was not wrong as USD/CNH rose to 6.5878, it was unable to hold on to its gains. The subsequent decline cracked 6.4400 in early May and the breach of the year-to-date low of 6.4009 on Tuesday (25 May) sent USD/CNH plummeting. Weekly MACD is beginning to turn negative and the risk within these couple of months is on the downside. However, until weekly MACD is deeper in negative territory, it is premature to expect the start of long-term downtrend. To look at it another way, the long-term support at 6.2364 (the low in 2018) is unlikely to come in to the picture within these few months.”

“In order to maintain the current downward momentum, USD/CNH should not move above the declining trend-line resistance (currently at 6.4800). On a shorter-term note, 6.4400 is already quite a strong level. On the downside, there is a minor support 6.3300 but the stronger support is at 6.3000.”