USD/CNH: Still scope for a deeper retracement – UOB

FX Strategists at UOB Group noted the outlook on USD/CNH still remains biased towards the downside.

Key Quotes

24-hour view: “Last Friday, we held the view that USD could ‘dip towards the 6.7380 support before a more sustained rebound can be expected’. Our view was incorrect as USD rebounded to a high of 6.7788 (low has been 6.7453) before closing at 6.7775 (+0.34%). While USD opened on a weak note this morning, momentum indicators are mostly neutral and USD is unlikely to weaken much from here. All in, USD is more likely to trade sideways, expected to be 6.7480/6.7750 range.”

Next 1-3 weeks: “Two days ago (15 Sep, spot at 6.7980) we highlighted that the negative phase that started in mid-August ‘has received a new lease of life’. We added, the next level to focus on is at 6.7660 followed by 6.7500. USD subsequently dropped at a furious pace and it cracked 6.7500 yesterday (low of 6.7429). Over the past 3 days, USD has lost a whopping -1.28%, its biggest 3- day loss in 20 months. It is not surprising that the rapid decline is oversold now. That said, downward momentum remains robust and the outlook for USD still remains weak. However, the pace of any further decline is likely to be slower and the next major support at 6.7165 may be out of reach this time round (there is a minor support 6.7300). Overall, only a break of 6.8100 (‘strong resistance’ level previously at 6.8230) would indicate that the current month-long negative phase has run its course.”