Currencies are calmer after the Brexit vote drama. But this calm cannot continue for too long. What’s next?
Here is their view, courtesy of eFXdata:
EUR/USD: Neutral (since 21 Aug 18, 1.1485): EUR is mild downward pressure, could test 1.1330 support.
We highlighted yesterday (15 Jan, spot at 1.1470) that EUR has likely ‘lapsed’ back into a consolidation phase and is expected to trade sideways within a 1.1410/1.1550 range. EUR subsequently cracked the bottom of the expected range at 1.1410 with ease and dropped to a low of 1.1378 before ending the day on a weak note (NY close of 1.1414, -0.52%). The rapid pick-up in downward momentum came as surprise and from here, we expect EUR to stay under pressure (albeit mildly). While EUR could test 1.1330 in the coming days, the next support at 1.1300 is a major level and is unlikely to yield so easily. All in, only a move back above 1.1500 (minor resistance is at 1.1460) would indicate that the current mild downward pressure has eased.
GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): Outlook is mixed; GBP is likely to gyrate in a broad range.
We highlighted on Monday (14 Jan, spot at 1.2850) that there is scope for the current recovery in GBP to extend to 1.2950. GBP subsequently touched 1.2930 before plunging to 1.2670 yesterday. The equally rapid and strong rebound from the low has resulted in a mixed outlook. In view of the current fluid and highly uncertain Brexit event, GBP could continue to trade in a volatile manner. From a slightly longer-term perspective, the key resistance is at 1.3000 and only a clear break of this level would suggest that GBP is ready to march higher in the weeks to come (1.2950 is a relatively strong intervening resistance). On the downside, the price action since the ‘flash-crash’ earlier this month suggests the 1.2409 low is unlikely to come back into the picture anytime soon. On a short-term note, 1.2600 is already a solid support. Putting it all together, GBP could continue to gyrate within a broad 1.2600/1.3000 range for the next couple of weeks.
AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): Recovery in AUD has room to extend to 0.7270.
We highlighted on Monday (14 Jan, spot at 0.7205) that overbought short-term conditions could “could lead to a few days of consolidation first before a move to 0.7270 can be expected”. Since then, AUD hardly budged as it traded sideways within narrow ranges. In other words, there is no change to our view and only a move below 0.7120 would indicate that the current mild upward pressure has eased.
NZD/USD: Neutral (since 07 Dec 18, 0.6880): NZD to consolidate at these higher levels.
NZD edged briefly above last Friday’s (11 Jan) 0.6843 high but eased off quickly after touching 0.6848 and closed largely unchanged in NY (0.6818, -0.04%). The price action reinforces our view wherein NZD is likely to “consolidate at these higher levels”. As highlighted on Monday (14 Jan, spot at 0.6825), only an unlikely NY closing above 0.6850 would indicate that NZD is ready to challenge the major 0.6900 level. Meanwhile, NZD could continue to consolidate for another couple more days. On the downside, a move below 0.6765 is enough to indicate that the current mild upward pressure has eased.
USD/JPY: Neutral (since 09 Oct 18, 113.10): USD is expected to trade sideways for now. No change in view.
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