USD/CNH risks a deeper pullback below 7.2000 – UOB

24-hour view: Last Friday, we indicated USD “could break the major support at 7.2380, but it remains to be seen if it can maintain a foothold below this level.” We also indicated that “the next support at 7.2250 is unlikely to come into view.” However, USD weakened more than expected as it broke below both 7.2380 and 7.2250 and plunged to a low of 7.2099. While the sharp and swift drop appears to be overdone, USD could retest the 7.2100 level before a more sustained recovery is likely. The major support at 7.2000 is unlikely to come under threat. Resistance is at 7.2350, followed by 7.2430. 

Next 1-3 weeks: Our most recent narrative was from Wednesday (15 Nov, spot at 7.2600). As highlighted, “downward momentum has increased, and USD is likely to weaken further to 7.2380.” We added, “If USD breaks clearly below 7.2380, the focus will shift to 7.2000.” Last Friday, USD plummeted to a low of 7.2099. Downward momentum has increased further, albeit not much. From here, USD must break clearly below 7.0000 before a sustained decline to 7.1800 is likely. Overall, only a breach of 7.2600 (‘strong resistance’ level previously at 7.2900) would indicate that the downside risk has eased.