Further US Dollar (USD) weakness is not ruled out; the major support at 7.2420 is likely out of reach for now. In the longer run, decline in USD seems excessive, but there is potential for a test of 7.2420, UOB Group’s FX analysts Quek Ser Leang and Lee Sue Ann note.

Decline in USD seems excessive

24-HOUR VIEW: “While we noted yesterday that ‘downward momentum is building,’ we were of the view that ‘this will likely lead to a lower trading range of 7.3200/7.3500 instead of a sustained decline.’ Instead of trading in a lower range, USD plunged, reaching a low of 7.2600. While further weakness is not ruled out, given the deeply oversold conditions, the major support at 7.2420 is likely out of reach (there is another support level at 7.2500). Resistance levels are at 7.3000 and 7.3140.”

1-3 WEEKS VIEW: “We revised our view to neutral yesterday (20 Jan, spot at 7.3360), we indicated that ‘upward momentum has dissipated.’ We pointed out that ‘there has been a slight increase in downward momentum, but it is not sufficient to indicate a sustained decline.’ We did not expect USD to plunge by 1.04% (7.2650), its biggest 1-day drop in 5-1/2 months. While the decline seems excessive, there is potential for USD to test the support at 7.2420. For the time being, the significant support at 7.2290 is unlikely to come into view. To keep the momentum going, USD must remain below 7.3380.”