The US Dollar is coming under steadily heavier selling pressure against the Chinese Yuan. Analysts Quek Ser Leang and Lee Sue Ann at United Overseas Bank (UOB) note that downside momentum in the USD/CNH pair keeps building, with the pair having slipped to 6.7653. On an intraday basis, there is a chance the Dollar tests major support at 6.7600, provided it stays below 6.7780.
Looking at the bigger picture, over a one to three week horizon the Dollar is expected to trade with a downside bias toward 6.7600. That view holds only as long as strong resistance at 6.7820 continues to cap any rebound in the currency.
The 24-Hour View
On Wednesday, the Dollar dropped to a low of 6.7695. The earlier read was that the rapid pickup in momentum pointed to further Dollar weakness, even if the major support at 6.7600 looked out of reach for the moment, with another support sitting just above it at 6.7660. On the upside, a break of 6.7800, where minor resistance lies at 6.7760, would have signalled that the decline was starting to stabilise.
That call proved correct, as the Dollar first climbed to 6.7781 and then fell back to a low of 6.7653. Downward momentum keeps increasing, and today there is room for the Dollar to test 6.7600. To keep that momentum alive, the Dollar needs to hold below 6.7780, where minor resistance is at 6.7720.
The One to Three Week View
The stance on the Dollar turned slightly negative on 15 July, when spot was trading at 6.7720. At that point the signal was that downward momentum was building and the Dollar was likely to trade with a downside bias toward 6.7600. That view stays intact as long as 6.7820 is not breached; a day earlier this strong resistance level had been pegged at 6.7860.
How Inflation Data Fed In
Fresh inflation figures are part of the backdrop to this currency move. June's Consumer Price Index (CPI) fell 0.4% on the month, the largest one-month decline since April 2020. That drop dragged the annual rate down to 3.5% from May's 4.2% and snapped a three-month streak of accelerating prices.
Core prices, which strip out food and fuel, went nowhere on the month and eased to 2.6% year on year. Both readings came in under consensus, a sign that underlying price pressures are loosening somewhat.
The Levels to Watch Next
The overall picture is one of a Dollar tilted lower against the Yuan for now. On the downside, support sits at 6.7660 and then 6.7600, while on the upside traders will keep an eye on minor resistance at 6.7720, 6.7760 and 6.7780, with strong resistance at 6.7820. As long as the pair stays below 6.7820, the current bout of weakness is expected to persist.
