Further decline looks on the cards for USD/CNH once sellers break below the 7.2700 level, argue Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia at UOB Group.
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24-hour view: We highlighted yesterday that “there is a chance for USD to test 7.2700.” We also highlighted that “a sustained drop below this level is unlikely. Our view was not wrong, as USD dipped briefly to 7.2670 before snapping back up. The mild downward pressure has eased. The current price action is likely part of a range-trading phase. Today, we expect USD to trade between 7.2770 and 7.2950.
Next 1-3 weeks: Our latest narrative was from Monday (06 Nov, spot at 7.2880), wherein, after the sharp drop last Friday, downward momentum is beginning to build, but USD must break clearly below 7.2700 before further decline is unlikely. Yesterday, USD dipped briefly below 7.2700 before rebounding from 7.2670. There is no increase in downward momentum. That said, we continue to hold the view that USD must break and stay below 7.2700 before further decline is likely. The chance of USD breaking clearly below 7.2700 is intact as long as it stays below 7.3200 (no change in ‘strong resistance’ level).