USD/CNH: Upward bias loses some traction – UOB

Extra gains to the 7.0960 region in USD/CNH could be running out of steam according to UOB Group’s Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia.

Key Quotes

24-hour view: “Last Friday, we expected USD to continue to rally but we were of the view that ‘the next major resistance at 7.0960 is likely out of reach’. While our view was not wrong, we did not quite expect how the price actions developed as USD soared to 7.0750 and then pulled back sharply and quickly from the high (low has been 7.0125). The rapid pullback from the high has room to extend but any weakness is likely part of a lower range of 7.0080/7.0400. In other words, a sustained drop below 7.0080 is unlikely.”

Next 1-3 weeks: “We have expected USD to strengthen for more than a week now. Our view turned out to be correct as USD surged last week. In our most recent narrative from last Friday (19 May, spot at 7.0500), we indicated that ‘while we continue to expect USD to strengthen, it remains to be seen if it can break above the next major resistance at 7.0960’. USD rose briefly to 7.0750 in Asian trade last Friday and then pulled back sharply. Short-term upward momentum is beginning to fade and the chance of USD rising to 7.0960 this time around has diminished. However, only a break of 7.0000 (no change in ‘strong support’ level) would indicate the USD strength has eased.”