The USD/CNH is expected to trade between 7.1200 and 7.1300, say analysts from UOB Group. Over the long term, the US Dollar is likely to stay within the range of 7.1120 to 7.1330. Recently, there has been a slight increase in downward momentum, indicating that a lower range of 7.1170 to 7.1280 is more likely than a continuous decline. On that day, the USD fluctuated between 7.1226 and 7.1268, closing at 7.1247, which is a small gain of 0.04%. The momentum indicators remain mostly stable, suggesting that the USD will continue to trade between 7.1200 and 7.1300.

Current Trading Environment

In the next 1 to 3 weeks, not much has changed since the last update when the USD was at 7.1230. It is expected to keep moving in a range, likely between 7.1120 and 7.1330 for the near future. With USD/CNH expected to move sideways, we are entering a period of low volatility. For traders in derivatives, this is a good time for strategies that benefit from little price movement. The best approach is to sell options premium as long as the pair stays within the range of 7.1120 to 7.1330. A popular strategy is to use an iron condor, selling an out-of-the-money call spread and a put spread. Recently, one-month implied volatility for USD/CNH has dropped to 3.8%, which is close to its lowest point since the third quarter of 2024, making selling options appealing. This defined-risk strategy allows traders to earn a premium if the pair ends between the short strikes at expiration.

Monetary Policy Implications

This stability is supported by recent comments from both the Federal Reserve and the People’s Bank of China, indicating no immediate policy changes. Both banks seem satisfied with the current economic climate, decreasing the chances of any major events that could disrupt the established range. This lack of monetary policy differences helps maintain a stable currency relationship for now. For those willing to take on more risk, selling a strangle by issuing a naked call option above 7.1330 and a naked put option below 7.1120 could bring in a higher premium. The aim is to earn this premium as the options lose value over the next few weeks due to time decay. This approach is particularly effective when momentum is stable, as current indicators suggest. We experienced a similar trading environment in the second half of 2024, where tight ranges lasted for months and rewarded traders who sold volatility. Historical data from that time showed that break-even points on short strangles were rarely challenged. The current situation, with China’s latest industrial output meeting expectations and U.S. inflation data remaining steady, resembles that calm period. However, it’s important to be cautious about the risk of a breakout from this range, even if it seems unlikely right now. Setting stop-losses or using defined-risk strategies is crucial. A sudden geopolitical event or unexpected economic data could quickly disrupt this range-bound trend. Create your live VT Markets account and start trading now.

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