USD/CNH: A sustainable drop below 6.7000 looks unlikely – UOB

Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group note that a convincing breach of 6.7000 in USD/CNH remains unlikely.

Key Quotes

24-hour view: “Yesterday, we highlighted that USD ‘could break the major support at 6.7500’. We added, ‘the next support at 6.7000 is unlikely to come into view’. Our view was not wrong as USD dropped to a low of 6.7250. Despite the relatively large decline, downward momentum has not improved significantly. While there is room for USD to weaken to 7.0000, a sustained decline below this major support is unlikely today. Overall, only a breach of 6.7620 (minor resistance is at 6.7480) would indicate that the USD weakness has stabilized.”

Next 1-3 weeks: “We have expected USD to weaken since last week. As USD fell, we indicated in our most recent narrative from Tuesday (10 January, spot at 6.7850) that USD is likely to weaken further and that a break of 6.7500 will shift the focus to 6.7000. USD took out 6.7500 in NY trade yesterday and plummeted to a low of 6.7250. We continue to expect USD weakness even though after such a large decline over a short period, the prospect of a sustained drop below 6.7000 is not high. On the upside, a breach of 6.7920 (‘strong resistance’ level was at 6.8250 yesterday) would indicate that the USD weakness has run its course.”