The continuation of the upside momentum in USD/CNH seems favoured while above the 7.0850 level, note UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: “While we expected USD to strengthen further yesterday, we were of the view that ‘it is unlikely to break clearly above 7.1200’. In other words, we did not anticipate the strong surge that sent USD to a high of 7.1345. Today, there is room for USD to advance further but severely overbought conditions suggest it is highly unlikely to break above the major resistance at 7.1500 (there is another resistance at 7.1400). On the downside, a breach of 7.1000 would indicate that the current upward pressure has faded.”

Next 1-3 weeks: “Yesterday (31 May, spot at 7.0930), we highlighted that ‘upward momentum has increased albeit not much’. We added, ‘the chance of USD breaking above 7.1200 has increased as well’. That said, we did not quite expect USD to quickly break above 7.1200 and soar to a high of 7.1345. Conditions are severely overbought but as long as 7.0850 (‘strong support’ level was at 7.0600 yesterday) is not breached, the USD strength that started in the middle of last month has a chance to extend to 7.1500.”