Currencies are looking for a new direction as the Davos gathering continues and as worries about trade continue as well. What’s next?
Here is their view, courtesy of eFXdata:
EUR/USD: Neutral (since 21 Aug 18, 1.1485): EUR is under mild downward pressure, could test the 1.1330 support.
We have held the same view since last Wednesday (16 Jan, spot at 1.1415) wherein “EUR is under mild downward pressure and could test the 1.1330 support”. After about a week of ‘grinding’ price action, EUR touched 1.1333 during NY hours before recovering quickly. While the recent mild downward pressure has waned, it is too early to expect a sustained rebound. Only a move above 1.1440 would indicate that a short-term bottom is in place. Until then, EUR could test 1.1330 again but in view of the lackluster momentum, a break of the next support at 1.1300 would come as a surprise.
GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): GBP is still trading within a broad range.
GBP rebounded and hit 1.2975 before ending the day on a firm note (NY close of 1.2959, +0.51%). The 1.2975 high was just a few pips below the top of our expected 1.2750/1.2980 consolidation range. While yesterday’s price action has clearly improved the underlying tone, it does not appear that GBP is ready for sustained up-move just yet. Only a NY closing above 1.3000 would indicate that GBP is ready to challenge the major 1.3075/1.3100 resistance zone. Meanwhile, we continue to expect GBP to ‘trade within a broad range’ even though the risk of sustained advance in GBP has increased and would increase further unless there is a dip below the strong 1.2850 support within these few days.
AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): Consolidation phase in AUD could persist.
While the post-flash crash’ recovery in AUD appears to have made a short-term top at 0.7235 on 11 Jan, it is unlikely that AUD would move lower in a sustained manner from here. As highlighted on Monday (21 Jan, spot at 0.7170), the current movement is viewed as part of a consolidation phase and AUD could continue to trade sideways for a while. For now, we estimate a 0.7090/0.7230 range is enough to contain the movement in AUD for the coming week. That said, a dip below 0.7090 is not ruled out but only a daily closing below 0.7060 would suggest AUD is ready to probe the 0.7000 support.
NZD/USD: Neutral (since 07 Dec 18, 0.6880): Bias is for a higher NZD but a break of 0.6830 is unlikely.
We have held the same view since last Thursday (17 Jan, spot at 0.6775) wherein “NZD is under mild downward pressure and could grind lower to 0.6710”. We added, “the prospect for a sustained decline below 0.6710 is not high”. After about a week, NZD dipped to 0.6707 yesterday but the better than expected NZ inflation data resulted in a strong bounce that hit 0.6757. While downward pressure has eased and the 0.6707 is likely a short-term bottom, it is too early to expect a sustained recovery. However, the bias for the coming week is tilted to the upside but at this stage, a clear break of 0.6830 would come as a surprise. On the downside, 0.6705/10 level is acting as solid support now.
USD/JPY: Neutral (since 09 Oct 18, 113.10): Scope for USD to test 110.00.
USD dipped briefly to 109.13 yesterday before recovering quickly. While the underlying tone has weakened, we continue to see the chance for USD to test 110.00. However, upward momentum is not strong and while a move above 110.00 would not be surprising, the prospect for a sustained move beyond 110.40 is not high. On the downside, only a move below 108.90 would indicate that the current upward pressure has eased.
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