USD/CNH risks further retracement – UOB

USD/CNH could accelerate losses and revisit the 6.6985 level in the short-term horizon, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “We noted yesterday that ‘the underlying tone has weakened somewhat’ and we expected USD to edge lower. However, we were of the view that the major support at 6.7400 is unlikely to come under threat. We did not anticipate the sudden surge in downward momentum as USD plunged to a low of 6.7250 before closing at 6.7373 (-0.45%). The boost in downward momentum is likely to lead to further USD weakness even though the month-to-date low near 6.6985 is unlikely to come under threat today (there is another support at 6.7100). On the upside, a breach of 6.7550 (minor resistance is at 6.7440) would indicate the current USD weakness has stabilized.”

Next 1-3 weeks: “Yesterday (27 Jan, spot at 6.7720), we held the view that USD is still consolidating, likely within a range of 6.7400/6.8000. We did not expect the sudden lurch lower as USD broke 6.7400 and plummeted to a low of 6.7250. Downward momentum is building quickly and we expect USD to weaken toward the month-to-date low near 6.6985. A break of 6.6985 is not ruled out but at this stage, the odds of USD weakening to the next support at 6.6500 are not high. Overall, only a breach of 6.7760 (‘strong resistance’ level) would indicate that the build-up in downward momentum has faded.”