Currencies have stabilized after the flash crash and ahead of Jay Powell’s speech and the NFP. What levels should we observe?
Here is their view, courtesy of eFXdata:
EUR/USD: Neutral (since 21 Aug 18, 1.1485): Scope for EUR to crack the major 1.1265 level.
EUR touched a 2-1/2 week low of 1.1307 yesterday before rebounding strongly to end the day higher by +0.44% (NY close of 1.1392). Despite the recovery, we continue to see scope for EUR moving below the major 1.1265 level. That said, the odds for a break of the solid 1.1200 support are not high. Only a move above the 1.1430 ‘key resistance’ would indicate that the current downward pressure has eased and that EUR is still caught within a broad sideway consolidation range.
GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): GBP could test the major 1.2400 support first.
GBP recovered all of yesterday’s early morning steep decline as it closed higher by +0.23% in NY (close of 1.2637). Despite the robust and rapid rebound, GBP is not out of the woods just yet. As highlighted yesterday, only a move above 1.2680 would suggest the current weak phase has stabilized. Until then, there is still chance for GBP to test the 1.2400 support first even though after the strong recovery, the prospect for such a move has diminished.
AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): AUD could continue to trade in a choppy manner within a broad range.
AUD survived the ‘flash crash’ remarkably well as it erased all of its loss and closed higher by +0.29% in NY (close of 0.7005). As highlighted yesterday, the probability for a sustained decline below the flash crash low of 0.6715 is not high but on the other hand, any recovery is expected to face solid resistance at 0.7055. After the unexpectedly ‘strong’ daily closing yesterday, a move back above 0.7055 would suggest that AUD may not revisit 0.6715 anytime soon. In the meanwhile, AUD could continue to trade in a choppy manner within a broad range.
NZD/USD: Neutral (since 07 Dec 18, 0.6880): Room for NZD to test 0.6550.
NZD rebounded strongly from a low 0.6591 and closed higher by +0.60% in NY (close of 0.6694). Despite the recovery, it is too early to expect a short-term bottom. Only a move above the 0.6720 would indicate that the current weakness has stabilized. Until then, we continue to hold the view that there is room for NZD to test the major 0.6550 support. That said, after the ‘strong’ daily closing yesterday, the prospect for such a move have diminished.
USD/JPY: Neutral (since 09 Oct 18, 113.10): USD could continue to trade in a volatile manner.
USD rebounded from the ‘flash crash’ but still closed lower for the day by -1.12% (NY close of 107.65). As highlighted yesterday, the price action after a flash crash is expected to remain volatile. The support and resistance levels are far apart and it could take a while before the current volatility would settle down. In the meanwhile, a 105.50/109.50 range should be enough to contain the price action in USD.
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