The US Dollar tanked after the dovish Fed decision. What’s next for currencies?
Here is their view, courtesy of eFXdata:
EUR/USD: Neutral (since 21 Aug 18, 1.1485): Vastly improved momentum suggests EUR could attempt to move to 1.1515.
We indicated on Tuesday (19 Mar, spot at 1.1335), “looking ahead, the prospect for a break of 1.1380 first is slightly higher but in view of the current lackluster momentum, any advance is expected to struggle to move beyond the next major resistance at 1.1420 (the late-Feb peak). While our anticipation for EUR to break above the sideway-trading range was correct, the pace and extent of the rally that blast past the strong 1.1420 level was unexpected (note that EUR registered the largest 1-day gain since late-Jan and closed at a 6-week high). The question now is whether EUR can extend its gain in the coming days. In view of the vastly improved momentum, it appears that EUR should least attempt to move towards the late-Jan peak of 1.1515. What is less clear at this stage is whether EUR can move above this level in a sustained manner. Scanning the longer-term chart, a sustained break of 1.1515 would suggest EUR have made a significant bottom at 1.1174 earlier this month. Meanwhile, EUR is expected to stay underpinned (do not see any strong reason to fade the current rally) until the ‘key support’ at 1.1330 is breach.
GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): GBP is expected to trade with a positive bias.
GBP is about the only ‘loser’ against USD as it dropped to an overnight low of 1.3147. The low is not far above our 1.3130 ‘key support’. As long as the ‘key support’ is intact, we would hold on the view that “GBP is expected to trade with a positive bias” (same view since last Thu, 14 Mar). That said, the prospect for such a scenario has clearly diminished. In order to ‘revive’ the current rapidly waning momentum, GBP has to move and stay above 1.3270 within these few days or a break of 1.3130 would not be surprising.
AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): AUD is expected to advance further but 0.7200/20 zone is expected to offer solid resistance.
After trading in a relatively quiet manner for several days, AUD was jolted awake and surged to a high of 0.7150. While upward momentum has picked up strongly, there are several strong resistance levels and for now, it is not clear whether AUD can surmount these formidable levels. All in, we expect AUD to advance further in the coming days but expect 0.7200/0.7220 zone to offer solid resistance. If AUD can break through this zone, it would greatly increase the odds for a move to the year-to-date high near 0.7295. To put it another way, we hold ‘positive’ view in AUD now and only a break of the 0.7070 ‘key support’ would indicate the current upward pressure has eased.
NZD/USD: Neutral (since 07 Dec 18, 0.6880): NZD to strengthen further, break of 0.6942 would shift focus to 0.6970.
We have held the same view since last Tuesday (12 Mar, spot at 0.6835) wherein we expected NZD to trade sideways within a 0.6750/0.6885 range. Over the past couple of days, we warned that “the prospect for a break of 0.6885 first appears to be higher but in view of the lackluster momentum, any gain is expected to struggle to move beyond the solid resistance zone of 0.6805/20”. Instead of ‘struggling’, NZD blast past the 0.6805/20 zone and soared to an overnight high of 0.6828. From here, we expect NZD to move above the 0.6942 top seen in early-Feb. A break above 0.6942 would shift the focus to 0.6970, the high in December last year. The high in December is a significant mid to long-term resistance and a break of this level would suggest NZD could advance further in the months ahead. We would revise our current ‘positive’ view on NZD if there were a break of the ‘key support’ at 0.6845.
USD/JPY: Neutral (since 09 Oct 18, 113.10): USD to stay on the defensive but expect solid support at 110.00.
Our expectation that “the bias for USD is tilted to the upside” is proven wrong as it plummeted overnight and cracked the 110.80 ‘key support’. While the impulsive drop has shifted the immediate risk to the downside, it is premature to expect a sustained decline. That said, we expect USD to stay on the defensive but any weakness is expected to encounter solid support at 110.00 (minor support at 110.30). On the upside, a break of ‘key resistance’ at 111.35 would indicate the current weakness has stabilized.
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