USD/CNH faces a tough support around 6.8400 – UOB

Extra losses in USD/CNH are expected to meet a solid support at 6.8400 in the near term, suggest Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “We did not anticipate the outsized sell-off in USD yesterday (we were expecting USD to consolidate). After such a sharp drop, further sustained decline is unlikely. However, there is scope for the USD weakness to extend to 6.8550 before stabilization is likely. Resistance is at 6.8950, a break of 6.9100 would indicate that the weakness in USD has stabilized.”

Next 1-3 weeks: “We have held a positive USD view since the start of last month. In our update from yesterday (01 Mar, spot at 6.9560), we indicated that ‘to maintain the upward momentum, USD has to break above 7.0000 within the next few days or the chances of further gains will diminish rapidly’. That said, we were surprised by the outsized sell-off as USD plunged below our ‘strong support’ level of 6.9220 (low of 6.8642) before closing lower by a whopping 1.08% (6.8800). The breach of our ‘strong support’ level indicates that the month-long USD strength has ended. The outsized decline appears to be overdone and while there is room for further USD weakness, we expect 6.8400 to offer solid support. On the upside, a breach of 6.9350 would indicate that USD is unlikely to weaken further.”