According to a market strategist working at the UOB Group, the USD/CNH pair is skewed towards the downside in the short term.
In the last 24 hours, the USD/CNH pair will likely dip below the 7.1250 level, but the support present at the 7.100 will likely remain intact. However, the UOB strategist also added that the USD must stay below the 7.1700 level to maintain the current trend. After all, the USD started a sharp rebound on a drop below the 7.1250 level!
USD/CNH Will Trade Between 7.1350 - 7.1800
They also added that the downtrend momentum in the USD/CNH pair has eased for now. In addition, the pair is also showing oversold readings in various readings, which has lowered the chances of further USD weakening. So for the rest of the trading day, the pair will likely trade between the 7.1350 and the 7.1800 price levels.
As for the next 1 to 3 weeks, the USD weakness will remain the dominant trend, and the break of the 7.1250 support will likely occur. Once this happens, the next stop for the USD/CNH will be the 7.1000, which remains an important support zone.
If we look back, a break below the 7.1250 level in the past led to a rebound which pushed the pair higher. So in the short term, the pair will likely consolidate due to the oversold conditions. In other words, the 7.100 level will likely remain out of the picture in the next few days.
On the other hand, a break above the 7.1930 level will tell us that the pair has stabilized and is now ready for further USD weakness.
Over all, the dominant theme in the FX markets is USD weakness, and that's what we are seeing in the USD/CNH pair as well. But this pair is a little different as even the PBOC is hinting towards easing in order to revive the economy. So while the USD is getting weak due a policy change, the same is expected from the Chinese authorities as well!