The market mood has worsened as trade talks between China and the US broke down and as Brexit is going nowhere fast. What’s next? What levels should we watch?
Here is their view, courtesy of eFXdata:
24-HOUR VIEW: EUR is expected to trade sideways, likely between 1.1165 and 1.1215. We expected EUR to “test 1.1225″ yesterday but were of the view that “a sustained rise above this level is not expected”. However, EUR only touched 1.1221 before dropping to an overnight low of 1.1164. Upward pressure has clearly waned and the current movement is viewed as part of a consolidation phase. In other words, EUR is likely to trade sideways for today, expected to be between 1.1165 and 1.1215.
1-3 WEEKS VIEW: EUR is expected to trade sideways. No change in view from yesterday, see reproduced update below. There is not much to add as EUR traded in a relatively subdued manner and ended the day largely unchanged at 1.1197 (-0.02%). The price action is in line with our current view (since last Thursday, 02 May, spot at 1.1200) wherein EUR is “expected to trade sideways”, likely between the two strong levels of 1.1110 and 1.1265. Momentum indicators are still mostly neutral and at this stage, there is no early indication on which level is more ‘vulnerable’.
GBP/USD:
24-HOUR VIEW: GBP could retest 1.3040 but this should be followed by a recovery. Instead of trading sideways, GBP dipped to 1.3040 before recovering. Despite the relatively deep pull-back, there is no significant improvement in downward momentum. That said, a retest of 1.3040 would not be surprising but this should be followed by a more sustained recovery (next support is at 1.3010). Resistance is at 1.3100 followed by 1.3130.
1-3 WEEKS VIEW: Odds for a break of the April’s peak of 1.3196 have improved. GBP has not been able to build on the strong gains made last week as it closed lower for the second straight day. For now, we continue to see chance for GBP to break last month’s 1.3196 peak but shorter-term overbought conditions suggest that GBP has to advance soon or the risk of a short-term top would increase quickly. To put it another way, upward momentum is beginning to wane and GBP has to move and stay above 1.3130 within these few days or a break of the 1.3035 ‘key support’ (no change in level) would not be surprising. Looking ahead, a break of the ‘key support’ would indicate that GBP has moved into a sideway-trading phase.
AUD/USD:
24-HOUR VIEW: AUD is expected to trade sideways, likely within a 0.6990/0.7035 range. AUD burst higher after RBA’s announcement and hit a high of 0.7048. However, the advance was short-lived as AUD dropped back quickly and hit an overnight low of 0.6998. The rapid swing has resulted in a mixed outlook and AUD could continue to trade sideways, likely between 0.6990 and 0.7035 (a break of the 0.7048 peak is not expected for today).
1-3 WEEKS VIEW: Break of 0.6950 would shift focus to 0.6910. Post-RBA announcement yesterday, AUD surged to 0.7048 but the up-move was short-lived. While our narrative remains as “a break of 0.6950 would shift focus to 0.6910″, after yesterday’s price action, the prospect for such a scenario has diminished. That said, only a move above the 0.7060 ‘key resistance’ (no change in level) would indicate that the 0.6960 low registered on Monday (06 May) is a short-term bottom.
NZD/USD:
24-HOUR VIEW: NZD is expected to consolidate its loss. RBNZ cut its official cash rates just a few minutes ago and NZD sent NZD crashing to 0.6525. While further NZD weakness would not be surprising in the days ahead, the current drop is running ahead of itself. From here, NZD is likely to consolidate its loss and trade sideways between 0.6525 and 0.6600.
1-3 WEEKS VIEW: NZD is expected to test the rising weekly trend-line at 0.6500. The rate cut by RBNZ a few minutes ago sent NZD crashing to a fresh 2019 low of 0.6525 (at the time of writing). As highlighted yesterday (08 May), “the underlying tone has since weakened and this has increased the risk of a resumption of the recent NZD weakness”. The impulsive decline earlier suggests NZD would likely depreciate further in the coming days. From here, the level to focus on is at the rising weekly trend-line connecting the 2015 and 2018 lows (trend-line is currently sitting at 0.6500). This is a solid level and may not yield so easily. Overall, NZD is expected to remain under pressure unless it can reclaim the 0.6630 ‘key resistance’ (level was at 0.6660 yesterday).
USD/JPY:
24-HOUR VIEW: Weakness in USD could test the 110.00 support first before stabilizing. Expectation for USD to trade sideways was incorrect as it dropped sharply and hit an overnight low of 110.16. While the sharp decline appears to be running ahead of itself, the weakness is not showing sign of stabilizing just yet. From here, barring a move above 110.70 (minor resistance at 110.50), USD could test the 110.00 support first before stabilizing. For today, the next support at 109.70 is unlikely to come into the picture.
1-3 WEEKS VIEW: Focus is at the March low of 109.70. There is not much to add to the update from Monday (06 May, spot at 110.65). As highlighted, USD is deemed to have moved into a negative phase and the focus is at the March low of 109.70. This is a rather solid support and may not yield so easily (next support is at 109.35). On the upside, the ‘key resistance’ level has moved lower to 111.10 from 111.45. Only a break of the ‘key resistance’ would indicate the current negative phase has ended.
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