CNH: USD/CNH Back Close To YTD Lows On Weaker US Data, Caixin Services PMI Out

The global bank weighs in on USD valuations and how much the dollar might fall. 

Goldman Sachs: "How overvalued is the Dollar? Investors have been asking how overvalued the Dollar is and how much further it can fall. We recently looked at this question through the lens of our two formal FX fair value models: GSDEER and GSFEER. These approach the question from separate angles but currently provide similar signals: the Dollar is around 16% overvalued on a trade-weighted basis. The FEER model links the currency to an economy’s external and internal imbalances, and we think it is the more relevant benchmark at the moment given the focus on the US current account deficit. Under the model’s assumptions, a 17% Dollar depreciation would be consistent with the US current account deficit (currently over 4%) converging to its long-run 'norm' (around 2.6% on our estimates), all else equal. In practice, external balance adjustments are often achieved with shifts in both domestic demand and exchange rates. Valuation is not a catalyst in and of itself and so exchange rates can trade far from their long-run fair value for extended periods, as has been the Dollar’s case over the past decade. However, when there is a rapid and large enough shock to macroeconomic fundamentals, currency adjustment back to fair value and/or large shifts in the fair value itself can be relatively fast. We have seen this before, for example with GBP during Brexit and with EUR during the gas supply shock. Finally, we would note that it is not unusual for currencies to overshoot once fair value is reached." 

• RES 4: 1.4415 High Apr 1
• RES 3: 1.4296 High Apr 7 
• RES 2: 1.4076 50-day EMA 
• RES 1: 1.3923 20-day EMA  
• PRICE: 1.3821 @ 15:09 BST May 5
• SUP 1: 1.3760 Low Apr 21 and the bear trigger 
• SUP 2: 1.3744 76.4% retracement of Sep 25 ‘24 - Feb 3 bull run
• SUP 3: 1.3696 Low Oct 10 2024
• SUP 4: 1.3643 Low Oct 9 ‘24 

The trend needle in USDCAD continues to point south. A fresh cycle low on Friday reinforces the bearish theme signalling scope for a continuation, near-term. Potential is seen for a move towards 1.3744, a Fibonacci retracement. Moving average studies are in a bear mode position, highlighting a dominant downtrend. First resistance to watch is 1.3923, the 20-day EMA.