The US Dollar is suffering a sell-off due to optimism on US-Chinese trade talks. What levels should we examine?
Here is their view, courtesy of eFXdata:
EUR/USD: Neutral (since 21 Aug 18, 1.1485): EUR has moved into a consolidation phase.
We highlighted yesterday that “we have doubts about the sustainability of EUR strength” and added, “we would adopt a more positive view on EUR if it closes above 1.1500 in NY”. The major 1.1500 level remains unthreatened as EUR eased off from a high of 1.1485. In other words, there is no change to the narrative wherein EUR is “trading in a consolidation phase”. That said, the underlying tone has improved and the major 1.1500 level would likely yield eventually. However, lackluster momentum indicators coupled with solid resistance at 1.1550 (there is another one at 1.1620) suggest that any EUR strength would likely be gradual and tentative. On the downside, support is at 1.1410 followed by 1.1350.
GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): GBP is expected to trade in a broad range.
GBP touched a high of 1.2797 yesterday before easing off quickly. The high was just below the late-Dec peak of 1.2814. The price action reinforces our view that GBP is trading “in a broad range” for now. As highlighted in recent updates, there is a slight upward bias but any GBP strength is viewed as part of a 1.2600/1.2850 range. Looking further ahead, a clear break above 1.2850 would suggest GBP is ready to stage a sustained recovery in the weeks ahead.
AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): Outlook for AUD is slightly positive; a sustained move above 0.7205 seems unlikely.
AUD traded in a relatively narrow range yesterday and there is no change to our view. As highlighted on Monday (07 Jan), the outlook for AUD is slightly positive but while the further gain is not ruled out, a sustained move above the next major resistance at 0.7205 seems unlikely (at least for the next couple of weeks). On the downside, the strong support level has moved higher to 0.7055 from 0.6995.
NZD/USD: Neutral (since 07 Dec 18, 0.6880): Strong recovery in NZD has scope to extend higher.
After closing higher for 3 consecutive days, NZD retreated and closed lower by -0.48% in NY (closed at 0.6720). Despite the pull-back, the underlying tone remains supportive and we continue to see the chance for the strong recovery (from the 0.6591 low) to extend higher. At this stage, the prospect for a sustained move above 0.6830 is not high. The two main support levels have moved higher to 0.6675 and 0.6700 (from 0.6645 and 0.6675 previously)
USD/JPY: Neutral (since 09 Oct 18, 113.10): USD is expected to trade sideways for now.
USD touched a post ‘flash crash’ high of 109.08 before easing off quickly. As highlighted in recent updates, despite the relatively positive price action, we still believe it is too soon to expect the start of a sustained USD rebound. From here, we continue to expect USD to trade sideways even though the improved underlying tone suggests that it would likely test the top of the expected 107.40/109.50 sideway trading range first (narrowed from 107.00/109.50 previously).
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