FX Strategist at UOB Group’s Global Economics & Markets Research Quek Ser Leang comments on the prospects for USD/CNH.

Key Quotes

“About two months ago on 17 Jun 2022, when USD/CNH was trading at 6.7100, we noted in our Global Quarterly Outlook that ‘daily MACD is not strong’. We highlighted that ‘the overall price actions appear to be part of a consolidation phase’ and we expected USD/CNH to ‘trade sideways between 6.5930 and 6.8400 in 3Q22’.”

“USD/CNH subsequently traded sideways, albeit within a narrower range than expected. Yesterday (15 Aug 2022), USD/CNH jumped to 6.8200 before closing higher by a whopping 1.16% (NY close of 6.8135), its largest 1-day gain since Mar 2020. Despite the large rise, daily MACD is only beginning to turn positive. In order to maintain the build-up in momentum, USD/CNH has to break and maintain a foothold above the year-to-date high near 6.8400 before a sustained advance is likely. To look at it another way, only a clear break of 6.8400 would indicate that the consolidation phase has come to an end.”

“The chance for USD/CNH to break clearly above 6.8390 would remain intact as long as it does not move below the top of the daily Ichimoku cloud, currently near 6.7330. The top of the cloud support is close to another key support, the 55-day exponential moving average. Looking ahead, if USD/CNH can break and maintain a foothold above 6.8390, it could possibly trigger a move to 6.9000.”