The US Dollar remains strong but it is not breaking to new ground. What’s next?
Here is their view, courtesy of eFXdata:
EUR/USD: Neutral (since 21 Aug 18, 1.1485): Break of 1.1450 would shift focus to 1.1390.
EUR traded in a relatively quiet manner last Friday and ended the day slightly higher in NY (closed at 1.1523, +0.08%). As highlighted last Thursday (04 Oct, spot at 1.1480), while the outlook for EUR is still ‘negative’, the prospect a move to 1.1450 have diminished. That said, only a break of 1.1580 (no change in ‘key resistance’ level) would indicate that a short-term bottom is in place. Meanwhile, EUR could trade sideways for the next 1-2 days but in order to revive the current waning momentum, EUR should head lower soon or the risk of a short-term bottom would increase quickly. Looking ahead, a break of 1.1450 would shift the focus to 1.1390.
GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): Still neutral but GBP likely to probe the top of the expected 1.3030/1.3220 range.
While we indicated last Friday “the odds for further GBP weakness have clearly diminished”, the pace and extent of the subsequent rally in GBP was not expected (over Thursday and Friday, GBP gained a whopping +1.43%, the largest 2-day gain in 8 months). At this stage, we continue to hold a neutral stance and view the current GBP strength as part of a higher trading range. In other words, we do not expect a sustained up-move from here. That said, the immediate bias is on the upside and for the next few days, we expect GBP to probe the top of the expected 1.3030/1.3220 consolidation range.
AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): Scope for AUD to test 0.7000.
We indicated last Thursday (04 Oct, spot at 0.7100) that “AUD is under pressure” and added the “the major 0.7030 support could be out or reach”. The pace of the anticipated weakness in AUD exceeded our expectation but extreme oversold indicators continue to suggest that the current AUD weakness may not be sustainable. That said, there is scope for a test of the next support at 0.7000 and we would likely upgrade the current ‘negative’ outlook for AUD to ‘bearish’ upon a clear break below this level. Meanwhile, AUD is expected to stay under pressure unless it can break above the 0.7110 ‘key resistance’ (level previously at 0.7175).
NZD/USD: Neutral (since 20 Aug 18, 0.6625): Room for NZD to test 0.6400.
We have held the same view since last Thursday (04 Oct, spot at 0.6505) that “further NZD weakness is expected to 0.6450″. However, the anticipated strong support at 0.6450 did not materialize as NZD cracked this level on Friday and dropped to a low of 0.6433. From here, we see room for NZD to test 0.6400 and we would likely upgrade the current ‘negative’ outlook to ‘bearish’ if there is a clear break below this level. On the upside, the ‘key resistance’ has moved lower to 0.6510 from 0.6550.
USD/JPY: Bullish (since 02 Oct 18, 113.95): Immediate ‘target’ is at 114.70. No change in view, see update from last Friday below.
The bullish 114.70 ‘target’ that was first highlighted on Tuesday (02 Oct, spot at 113.95) remains elusive as USD staged a surprisingly sharp drop after touching a high of 114.54 during Asian hours yesterday. The rapid decline touched a low of 113.62 during NY hours, holding just above the ‘stop-loss’ for our bullish view at 113.50. The price action has clearly dented the recent strong upward momentum but confirmation of a short-term top is only upon a break of 113.50. That said, USD could not afford to hold below 114.70 for too long as a prolonged consolidation at these overbought levels would greatly increase the odds for a short-term top. All in, the price action over next few days should give us a clue on whether the current USD strength could extend further. Note that USD moved into a ‘positive’ phase more than 3 weeks ago, see update on 12 Sep (spot at 111.60) and we upgraded the outlook to bullish on Tuesday (02 Oct).
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