USD/CNH: Extra decline remains favoured – UOB

Markets Strategist at UOB Group Quek Ser Leang suggests further losses lie ahead for USD/CNH in the short term.

Key Quotes

“… when USD/CNH was trading at 6.8900, we noted that ‘the rapid pace of drop suggests USD/CNH could break both 6.8400 and the 55-week exponential moving average (currently at 6.8240)’.”

“While our view was correct, we did not quite expect the steep selloff as USD/CNH plunged below both 6.8400 and 6.8240 and nosedived to a low of 6.7045 last week before extending its decline to 6.6982 yesterday (16 Jan). It is worth noting that on a 2-week basis, USD/CNH lost a whopping 1.71% last Friday, the biggest 2-week drop on record.”

“Further USD/CNH weakness is not ruled out but after such a sharp drop over a short time, the risk is for USD/CNH to consolidate first before heading lower at a later stage. Even if USD/CNH were to weaken further, the pace of any decline is likely to be slower especially when there are several strong support levels between 6.5730 and 6.6670. Resistance-wise, a breach of 6.8550 would indicate that the sharp drop in USD/CNH over the past few weeks has stabilized.”