Insights 
VT 
The US Dollar is anticipated to test the 7.0860 level, with a sustained decrease below this point being unlikely. Any decline to the next support at 7.0700 is also not expected to occur. However, long-term trends suggest a potential drop below 7.0860, with 7.0770 being the next key level to monitor, according to analysts from UOB Group.
Short Term Expectations
In the short-term, while the USD was at 7.1085, there were expectations of a dip below 7.1000 before it recovered. The drop to 7.0916 suggests it might test 7.0860, but oversold conditions mean it is unlikely to fall further. Resistance levels are identified at 7.1000 and 7.1055, with the latter indicating stabilisation if breached.
Over a 1-3 week period, price action supports the possibility of the USD dropping below 7.0860, with 7.0770 being pivotal. Since mid-month, the view has been negative for USD, though sufficient momentum to break 7.0860 remains uncertain. A drop to 7.0916 was unexpected, indicating a potential fall below 7.0860. A break of 7.1150 would suggest easing of the current pressure.
The downward momentum in USD/CNH is strengthening, suggesting we could test the year-to-date low of 7.0860. This move is supported by fundamental data, as last week’s US Core PCE price index slowed to 2.1%, fueling expectations that the Federal Reserve will begin cutting rates in early 2026. Given the current oversold conditions, a sharp, continued decline below this level today seems unlikely.
For the coming weeks, a bearish stance on the US dollar against the yuan is warranted. Derivative traders might consider buying put options with strikes near the next support level of 7.0770, anticipating a breakdown below 7.0860. This strategy allows for participation in the downside while capping risk if the dollar unexpectedly rebounds.
Policy Divergence Situations
This outlook is reinforced by the growing policy divergence between the US and China. While markets are pricing in a 75% chance of a Fed rate cut by March 2026, China’s recent Q3 2025 GDP growth of 5.1% signals economic resilience, giving the People’s Bank of China room to maintain stable policy. This contrasts sharply with the situation back in 2023, when a hawkish Fed was the primary driver of dollar strength.
The key risk to this view is a break above the 7.1150 resistance level. Selling call spreads with a ceiling around that area could be an effective way to generate income while betting that any dollar recovery will be limited. Such a strategy benefits from both a falling price and time decay if the pair remains range-bound below resistance.
