USD/CNH: The 7.04 region could be the next target

USD/CNH could extend the upside momentum to the 7.04 area in the next weeks, noted FX Strategists at UOB Group.

Key Quotes

24-hour view: “We highlighted yesterday ‘severely overbought short-term conditions suggest the strong rally in USD is likely to take a breather’. While our view was not wrong, the registered range of 6.9650/6.9885 was narrower than our expected sideway-trading range of 6.9600/7.0000. The movement is still viewed as part of a sideway-trading phase even though the weakened underlying tone suggests USD is likely to trade at a lower range of 6.9500/6.9820.”

Next 1-3 weeks: “While we have held the same view since last Wednesday (22 Jan, spot at 6.9100) wherein ‘a short-term bottom is in place’ and the \corrective recovery in USD could extend to 6.9650’, the manner by USD exceeded the 6.9650 level yesterday (27 Jan) came as a surprise. Note that the 1-day gain of +0.76% yesterday is the largest since the ‘snap back’ in mid-December. While 7.0000 is another strong resistance, the impulsive momentum suggests USD could extend its gains above this level to 7.0400. Only a move back below 6.9350 would indicate that the current advance in USD has run its course.”