The US Dollar is projected to trade between 7.1440 and 7.1630 against the Chinese Yuan. UOB Group’s FX analysts suggest that, in the long run, the USD could fall to 7.1295. On Wednesday, the US Dollar ended lower at 7.1514, dropping 0.25%. It briefly fell to 7.1435 before bouncing back to close at 7.1549, showing a slight rise of 0.05%. The currency appears to be in a phase of range-bound trading.

Negative Outlook on USD

The sentiment towards the US Dollar has turned negative after being neutral for over a week. The forecast indicates it might hit 7.1295, provided it stays under the resistance level of 7.1730. Currency movement involves risks and uncertainties, so readers should do their homework before making investment choices. There is a risk of total financial loss, and the analysis may not always be accurate or timely. The investor is responsible for all outcomes. We anticipate the US Dollar will move sideways against the Yuan, according to the financial group’s analysis. This range trading creates opportunities for option traders. The key now is to take advantage of the absence of a strong directional trend in the near-term. Recent US data supports this sideways trend. The Federal Reserve has hinted at fewer interest rate cuts for 2024, which benefits the dollar. However, May’s consumer price index was lower than expected at 3.3%. This mixed information adds uncertainty, keeping the currency pair in a tight range.

China’s Economic Factors

On China’s end, the People’s Bank has been setting a daily Yuan reference rate higher than expected. This indicates a push for stability, countering pressures from a tough property market and mixed economic data—like May’s industrial output, which grew by only 5.6%. These conflicting factors help maintain the trading range. Given the anticipated stability, selling options might be a smart strategy. Traders could consider options like short strangles or iron condors to earn premiums as the currency pair stays between the forecasted 7.1440 and 7.1630. The low implied volatility in this stable environment makes selling options attractive. However, we should also prepare for the negative outlook mentioned earlier. The potential decline to 7.1295 indicates a growing bearish sentiment. Historically, extended periods of stability in the Yuan, like in late 2023, can often lead to sharp movements. To prepare for this possible drop, we could buy long-dated put options at a low price. A bear put spread is another cost-effective strategy to profit from a decline to the 7.1295 target, allowing traders to manage their risk while holding a bearish position. The key level to watch is the 7.1730 resistance. If the price fails to break above this, it would strengthen our bearish outlook and show sellers in control. Any approach to this level followed by a rejection could present an excellent chance to increase bearish positions. Create your live VT Markets account and start trading now.

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