The sharp drop in US Dollar (USD) could test 7.1100 before stabilization can be expected; the next support at 7.1000 is unlikely to come into view. In the longer run, USD remains negative, and it could drop and potentially break below 7.1000, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

USD might test 7.1100 before stabilization

24-HOUR VIEW: "We pointed out yesterday that 'the bias is tilted to the downside.' However, we noted that 'it is unclear whether USD can break clearly below 7.1435.' The sudden downward acceleration that sent USD to a low of 7.1185 was surprising. What is not surprising is that the sharp drop is deeply oversold. However, the weakness has not stabilised, and USD could test 7.1100 before stabilisation can be expected. The next support at 7.1000 is unlikely to come into view. Resistance is at 7.1280, and if USD breaks above 7.1370, it would indicate that the weakness has begun to stabilise."

1-3 WEEKS VIEW: "We turned slightly negative on USD on Monday (25 Aug, spot at 7.1740), indicating that USD 'may edge lower, but any decline is unlikely to break below 7.1600.' After USD broke below 7.1600, we highlighted on Tuesday (26 Aug, spot at 7.1580) that 'the rapidly increasing downward momentum indicates USD could drop below July’s low of 7.1435.' USD then traded sideways for a couple of days, holding above 7.1435, until yesterday, when it plunged to a low of 7.1185. We maintain our negative stance and now expect USD to drop and potentially break below 7.1000. On the upside, the ‘strong resistance’ level is now at 7.1550 instead of 7.1800."