Further downside in USD/CNH looks likely, although there is a solid support around 7.0000, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group’s Global Economics & Markets Research.

Key Quotes

24-hour view: “Yesterday, we noted that ‘the underlying tone in USD is soft’ and we held the view that ‘any further weakness in USD is likely limited to a test of 7.0800’. We did not expect the rapid downward acceleration as USD plunged to 7.0332 before closing on a weak note (7.0387, -0.92%). Not surprisingly, the sharp and swift decline is oversold but with no sign of stabilization just yet, USD could continue to weaken. However, the major support at 7.0000 is unlikely to come into view today (there is another support at 7.0200). Resistance wise, a breach of 7.0750 (minor resistance is at 7.0620) would indicate the weakness in USD has stabilized.”

Next 1-3 weeks: “Last Friday (30 Sep, spot at 7.1000), we highlighted that the recent USD rally has topped out and we expected USD to consolidate within a broad range of 7.0500/7.2200. Yesterday, USD took out 7.0500 and plummeted to a low of 7.0332. The break of the 7.0500 support combined with the rapid build-up in downward momentum suggests that USD could drop further. That said, it remains to be seen if USD can break the major and significant support at 7.0000. Overall, only a breach of 7.1170 (‘strong resistance’ level) would indicate the downside risk in USD has subsided.”