The US Dollar (USD) is expected to rise to 6.9805 against the Chinese Yuan (CNH), but a long-term increase is unlikely. Analysts believe that oversold conditions and weakening momentum will restrict the decline to 6.9590. Last Friday, the USD reached a low of 6.9662 and closed nearly unchanged at 6.9709. Early trading in Asia shows a possible rise to 6.9805, with support at 6.9690 and 6.9650. In the one-to-three-week outlook, last month’s sharp decline is seen as excessive. While there are no clear signs of stabilization, the oversold conditions suggest limited risk of falling below 6.9590. On the other hand, if the USD breaks above 6.9950, it might indicate a recovery from its weakness. These insights come from FXStreet’s analysis, which includes expert opinions.

Market Environment Factors

The current market is influenced by various factors, including weak US economic data and geopolitical tensions. Notably, the USD/JPY has fallen due to weak US manufacturing data and rising Japanese yields, while the British Pound (GBP) has strengthened amid geopolitical flows. Economic events affecting other currencies also contribute to the complex market dynamics impacting USD/CNH movements. We view the recent drop in USD/CNH as excessive, presenting a tactical opportunity in the coming weeks. The pair appears significantly oversold after December’s decline, indicating limited downside towards 6.9590. Given that China’s official Manufacturing PMI for December unexpectedly fell to 49.0, we anticipate a short-term recovery back to 6.9805. The weak US ISM Manufacturing index of 47.9 is a concerning indicator for the dollar’s strength. This contraction, which marks the third consecutive month below the 50.0 mark, advises caution regarding any widespread USD recovery. It may be wise to consider options to sell USD rallies against currencies like the British Pound, which has surpassed the 1.3500 level.

Market Volatility and Investment Opportunities

With the evolving situation in Venezuela, we expect high market volatility to persist. The CBOE Volatility Index (VIX) rose to 21.5 over the weekend, indicating increased uncertainty in equity markets. This atmosphere supports holding long positions in safe-haven assets like gold and the Japanese yen through futures or exchange-traded funds. The cryptocurrency market is diverging from traditional risk-averse trends, driven by its unique dynamics. Last week saw net inflows of over $500 million into spot Bitcoin ETFs, highlighting ongoing institutional interest as we enter the new year. Therefore, we should consider cryptocurrencies as a separate momentum investment, possibly using call options on BTC and ETH to capitalize on potential gains. Create your live VT Markets account and start trading now.

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