Further selling pressure could drag USD/CNH to the 7.1100 region in the near term, argue Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.
24-hour view: We expected USD to weaken yesterday, but we held the view that 7.2000 is unlikely to come under threat. We did not anticipate the outsized and sharp selloff that sent USD plunging to a low of 7.1631. USD continues to decline in early Asian trade, and the risk is for further USD weakness. In view of the severely oversold conditions, it remains to be seen if the next major resistance at 7.1100 is within reach today (there is a minor support at 7.1300). Resistance is at 7.1750; a breach of 7.1950 would mean that the weakness in USD has likely stabilised.
Next 1-3 weeks: Yesterday (20 Nov, spot at 7.2220), we indicated that USD “must break clearly below 7.0000 before a sustained decline to 7.1800 is likely.” We added, “only a breach of 7.2600 would indicate that the downside risk has eased.” We were surprised by the manner in which USD not only sliced through 7.2000 but also nose-dived to 7.1631. What is unsurprising is that further USD weakness is likely. The next support is near 7.1100, just above the 55-week exponential moving average (see weekly chart in the 1-3 months update below). On the upside, the ‘strong resistance’ level has moved markedly lower to 7.2200 from 7.2600