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The US Dollar stormed higher alongside US bond yields. What’s next? What levels should we watch on major pairs?

Here is their view, courtesy of eFXdata:

EUR/USD: Neutral (since 21 Aug 18, 1.1485): Break of 1.1450 would shift focus to 1.1390.

While we expected EUR to weaken since last Friday (28 Sep, spot at 1.1640), the pace and extent the decline in EUR continues to surprise us. We highlighted yesterday (03 Oct, spot at 1.1545) that there is chance for EUR “to weaken further towards the next support at 1.1450″ but added, “this level is unlikely to come into the picture so soon”. After the sharp drop during late NY hours, 1.1450 appears to be within reach sometime in the next 24 to 36 hours. A break of this level would shift the focus to 1.1390. Looking ahead, despite the overall negative outlook for EUR, we have reservations about the sustainability of the current weakness. In other words, we are not ready to adopt a bearish stance just yet. That said, EUR is expected to remain under pressure until it can crack the ‘key resistance’ at 1.1580 (level was at 1.1630 yesterday).

GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): GBP is still under pressure, could test the next support at 1.2900. There is not much to add to yesterday’s update (see below). However, the ‘the ‘key resistance’ has moved lower to 1.3050 from 1.3080.

We highlighted earlier yesterday (02 Oct, spot at 1.3040) that “while downward momentum has not improved all that much, the near-term bias is on the downside even though any GBP weakness may struggle to break 1.2940″. That said, we do not expect 1.2940 to be tested within 24 hours as GBP hit a low of 1.2941 during NY hours before rebounding quickly. Despite the recovery, the current weakness has yet to show sign of stabilization and we expect GBP to remain under pressure in the coming days. From here, a clear break of 1.2940 would suggest GBP is ready to tackle the next support at 1.2900. Depending on price action in the next few days, a probe of the next support at 1.2860 would not exactly be surprising. On the upside, only a break of the ‘key resistance’ at 1.3080 (previously at 1.3170) would indicate that GBP has found a short-term bottom

AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): AUD under pressure; but major 0.7030 support could be out of reach.

While we have expected a lower AUD since last Friday (28 Sep, spot at 0.7205), our conviction level was not high and we indicated on Tuesday (02 Oct, spot at 0.7225), “there is still a slim chance that AUD may test the 0.7140 support but this has to happen within these 1 to 2 days”. That said, the outsized decline of -1.21% yesterday (NY close of 0.7101) was not exactly expected. From here, AUD is still clearly under pressure even though we have doubts about the sustainability of the current weakness. However, a break below the year’s low of 0.7085 would not be surprising but there is a strong support at 0.7030 and this level is unlikely to yield so easily. To put it another way, the prospect for a break below 0.7030 is not high for now. All in, AUD is expected to remain under pressure as long as the ‘key resistance’ at 0.7175 is intact (level previously at 0.7260).

NZD/USD: Neutral (since 20 Aug 18, 0.6625): Expect further NZD weakness to 0.6450.

The sudden and sharp drop in NZD yesterday was clearly unexpected. The immediate risk is clearly on the downside but for now, we expect 0.6450 to offer solid support. Only a break 0.6570 (‘key resistance’) would indicate that a short-term low is in place

USD/JPY: Bullish (since 02 Oct 18, 113.95): Immediate ‘target’ is at 114.70. No change in view, see update from yesterday below. However, the ‘key support’ has moved higher to 113.50 from 113.15.

USD snapped its recent winning streak and closed lower yesterday (NY close of 113.66, -0.21%). The price action is not surprising as we highlighted yesterday (02 Oct, spot at 113.95) that “short-term indicators are at severely overbought levels and this could lead to a couple of days of consolidation first”. In other words, there is no change to our bullish USD view and we continue to anticipate a move to 114.70. Only a break of 113.15 would indicate that a short-term top is in place. The ‘stop-loss’ level at 113.15 is relatively close as USD could not ‘afford’ to retrace too much amidst the current overbought condition or the risk deep pull-back would increase quickly. Note that we have held a ‘positive’ outlook in USD since 3 weeks ago (12 Sep, spot at 111.60) and upgraded the outlook to bullish yesterday (02 Oct).