USD/CNH could lose upside traction if it breaks below the 7.0500 level in the near term, comment UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: “After USD rose to 7.0976 last Friday and then sold off, we highlighted yesterday that ‘upward pressure has eased and conditions remain overbought’ and we expected USD to trade sideways in a range of 7.0600/7.0930. Our view for sideways trading was not wrong even though USD traded in a narrower range than expected (7.0719/7.0920). Momentum indicators are mostly neutral and we continue to expect USD to trade sideways, likely in a range of 7.0700/7.0930.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (29 May, spot at 7.0800). As highlighted, last Friday’s outside reversal day suggests the chance of USD rising further to 7.1200 is low. However, only a breach of 7.0500 would indicate that the USD strength that started more than 2 weeks ago has run its course.”