USD/CNH remains under pressure and could attempt a test of the 6.3525 level in the next weeks, noted FX Strategists at UOB Group.

Key Quotes

24-hour view: “We highlighted yesterday that USD ‘could weaken to 6.4180 but it is left to be seen if it could maintain a foothold below this level’. We clearly did not anticipate the subsequent outsized sell-off that sent USD nosediving to a low of 6.3685. While the sell-off appears to be overdone, the weakness has not stabilized. In other words, USD could weaken further even though May’s low near 6.3525 could be just out of reach. Resistance is at 6.3900 followed by 6.4000.”

Next 1-3 weeks: “Last Thursday (14 Oct, spot at 6.4340), we highlighted that ‘downward momentum is beginning to build but USD has to close below 6.4240 before a sustained decline can be expected’. We added, ‘the chance for USD to close below 6.4240 is quite high’. USD subsequently probed 6.4240 a couple of times but did not close below this level. Yesterday (19 Oct), USD staged a sudden and sharp sell-off that sent it plunging by -0.82% (NY close of 6.3759), its largest 1-day drop since Dec 2019. While the outsized sell-off is overdone, there is scope for USD to drop to May’s low near 6.3525. Looking ahead, USD has to close below this support before further weakness can be expected. The downside risk is intact as long as USD does not move above the ‘strong resistance’ level at 6.4200.”