The US dollar is taking a breather after gaining on Friday. What’s next?
Here is their view, courtesy of eFXdata:
EUR/USD: Neutral (since 21 Aug 18, 1.1485): EUR is likely to trade sideways.
While we indicated last Friday (22 Mar) that “in order to maintain the current momentum, EUR could not afford to ‘dither’ as it would greatly decrease the prospect for further EUR strength”, the subsequent large decline of more than -0.50% (NY close of 1.1313, -0.52%) came as a surprise. As highlighted, a break of the 1.1330 ‘key support’ would indicate that EUR is not ready for a sustained up-move. The recent price action wherein EUR failed to extend its decline after dropping sharply below 1.1200 earlier this month (low of 1.1174 on 07 Mar) and last Friday’s rapid and sharp drop (after rising strongly to 1.1448 on Wed, 20 Mar) have resulted in an unclear outlook. Most indicators have turned ‘flat’ which suggest EUR could trade sideways between 1.1174 and 1.1448 for a protracted period. From the perspective of a couple of weeks, a 1.1220/1.1400 range is likely enough to contain the expected sideways trading in EUR.
GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): Diminished odds for further GBP weakness.
After dropping sharply to 1.3004 last Thursday (21 Mar), GBP staged a surprisingly robust rebound and hit a high of 1.3224 on Friday. The high was just a few pips below our 1.3230 ‘key resistance’. While the ‘key resistance’ is still intact, the price action has diminished the prospect for GBP to revisit the 1.3000 level (our view from last Friday). From here, unless GBP can move and stay below 1.3130 within these 1 to 2 days, a break of 1.3230 would indicate that GBP is trading sideways within a very broad range.
AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): No clear direction, AUD is expected to trade sideways.
While we expected a higher AUD, we indicated on Friday (22 Mar) that “there are several strong resistance levels and for now, it is not clear whether AUD can surmount these formidable levels”. That said, the relatively large drop of -0.47% on Friday came as a surprise. The build-up in momentum has fizzled out and from here, there is no clear directional view and AUD is expected to trade sideways within a broad 0.7000/0.7170 range.
NZD/USD: Neutral (since 07 Dec 18, 0.6880): NZD to strengthen further, break of 0.6942 would shift focus to 0.6970. No change in view from last Friday, see reproduced update below.
NZD touched a high of 0.6938 yesterday, just a few pips below the February’s peak of 0.6942. As highlighted yesterday (21 Mar, 0.6915), we are anticipating NZD to move above 0.6942 and a break of this level would shift the focus to 0.6970. That said, the subsequent rapid retreat from the 0.6938 high was not exactly expected as NZD closed lower by end of the day (-0.10%, 0.6876). While the price action is not ‘ideal’ for our view, only a break of the 0.6845 ‘key support’ would indicate that our expectation is incorrect.
USD/JPY: Neutral (since 09 Oct 18, 113.10): USD is still under pressure but expect solid support at 109.40.
While we indicated last Thursday (21 Mar, spot at 110.70) “USD is to stay on the defensive”, we held the view that “110.00 would offer solid support”. The manner of which USD plunged below 110.00 on Friday came as a surprise as it registered the largest 1-day loss since the ‘flash crash’ in early-Jan (NY close of 109.91, -0.80%). While it is too soon to expect a sustained recovery, the decline appears to be running ahead of itself and any further weakness is expected to face solid support at 109.40. On the upside, the ‘key resistance’ has moved lower to 110.95 from 111.35.
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