USD/CNH could lose some upside momentum once 7.0500 is cleared, argue UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: “We highlighted last Friday that ‘conditions are deeply overbought and USD is unlikely to advance much further’ and we expected USD to trade in a range between 7.0700 and 7.1000. USD rose close to the top of the expected range (high of 7.0976) and then sold off sharply to a low of 7.0585. Upward pressure has eased and conditions remain overbought. Today, USD is likely to trade sideways in a range of 7.0600/7.0930.”

Next 1-3 weeks: “Last Friday (26 May, spot at 7.0885) we highlighted that while the USD strength that started more than two weeks ago is intact, conditions are deeply overbought and 7.1200 may not come into view so soon. USD rose slightly above a key resistance level of 7.0960 (high of 7.0976) and then pulled back sharply to a low of 7.0585. The price actions resulted in an ‘outside reversal day’. This coupled with overbought conditions suggests the chance for USD to rise to 7.1200 is low. However, only a break of the ‘strong support’ at 7.0500 (no change in level) would indicate the USD is not advancing further.”