The US Dollar is expected to test the 7.0860 level, but a sustained drop below this point is unlikely. A decline to the next support at 7.0700 is also not anticipated. However, long-term trends hint at a possible fall below 7.0860, with 7.0770 being the next important level to watch, according to analysts at UOB Group.

Short Term Expectations

In the short term, when the USD was at 7.1085, it seemed likely to dip below 7.1000 before bouncing back. The drop to 7.0916 suggests it might test 7.0860, but current oversold conditions make a further decline less probable. Resistance levels are at 7.1000 and 7.1055, with breaking the latter indicating stabilization. Over the next 1-3 weeks, market activity supports the potential for the USD to drop below 7.0860, with 7.0770 being crucial. The outlook has been negative for the USD since mid-month, although there is uncertainty about breaking 7.0860. The drop to 7.0916 was unexpected and suggests the possibility of falling below 7.0860. If it breaks 7.1150, it may ease the current pressure. The downward trend in USD/CNH is gaining strength, suggesting a possible test of this year’s low at 7.0860. This movement is supported by recent data, as last week’s US Core PCE price index slowed to 2.1%, leading to expectations that the Federal Reserve might cut rates in early 2026. Given the oversold conditions, a significant decline below this level today seems unlikely. In the coming weeks, a cautious approach to the US dollar against the yuan is recommended. Traders might consider buying put options near the support level of 7.0770, expecting a drop below 7.0860. This strategy allows for profit if the dollar declines while limiting risk in case of an unexpected rebound.

Policy Divergence Situations

This outlook is supported by the increasing policy divergence between the US and China. Markets are predicting a 75% chance of a Fed rate cut by March 2026, while China’s recent Q3 2025 GDP growth of 5.1% shows economic strength, allowing the People’s Bank of China to keep its policies stable. This contrasts with 2023, when a strict Fed primarily drove dollar strength. The main risk to this view is if the USD breaks above the 7.1150 resistance level. Selling call spreads with a ceiling around that area may be an effective strategy to earn income while anticipating limited recovery in the dollar. This approach benefits from both a declining price and time decay, especially if the pair remains stuck below resistance. Create your live VT Markets account and start trading now.

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