Currencies are looking for a new direction after a few mixed days. What’s next?
Here is their view, courtesy of eFXdata:
EUR/USD: Neutral (since 21 Aug 18, 1.1485): Clear break above 1.1620 would shift focus to 1.1700.
EUR touched a high of 1.1606 yesterday, holding just a few pips below last Friday’s 1.1610 peak before easing off to close slightly higher (NY close of 1.1577, +0.12%). The price action is not surprising as we noted yesterday (15 Oct, spot at 1.1555), “neutral short-term indicators could lead to a couple of days of consolidation”. As highlighted, there is still chance that EUR could break above 1.1620 and this would suggest scope for further EUR strength towards 1.1700. Only a break of 1.1520 (‘key support’ previously at 1.1500) would indicate that the current upward pressure has eased
GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): GBP is expected to trade sideways.
GBP rebounded strongly from the 1.3080 low seen during early Sydney hours yesterday. Despite the recovery, we continue to view last Friday’s 1.3259 high as a short-term top. However, the overall outlook is still deemed as neutral but we expect GBP to trade sideways to slightly lower in the coming days, likely within a 1.3040/1.3220 range (narrower than the 1.3000/1.3220 range expected yesterday).
AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): AUD likely to trade within a broad range. No change in view.
AUD traded in a relatively narrow range last Friday and ended the day largely unchanged (NY close of 0.7117, -0.09%). The price action reinforces our view wherein we expect AUD to trade sideways in the coming days, likely within a 0.7040/0.7200 range. Looking ahead, the current price action seems to suggest that AUD is attempting to base out but this process could take up to a few weeks.
NZD/USD: Neutral (since 20 Aug 18, 0.6625): A sustained rebound only if above 0.6630.
While we expect NZD to trade sideways, we highlighted last Friday (12 Oct, spot at 0.6525), “the prospect for a break above 0.6560 has increased but the next resistance at 0.6600 is likely strong enough to thwart any further advance in NZD (at least for another one week or so)”. NZD hit a high of 0.6557 during NY hours yesterday before blasting above 0.6560 after the release of the stronger than expected NZ inflation data earlier this morning. The high at the time of writing is 0.6598 and in view of the vastly improved momentum, a break above 0.6600 would not be surprising. That said, we have doubts about the sustainability of the current NZD strength and in our view, only a clear break of 0.6630 would indicate that NZD is ready for a stronger recovery towards the September’s peak near 0.6700. All in, NZD is expected to stay underpinned from here as long as the ‘key support’ at 0.6500 is intact.
USD/JPY: Neutral (since 09 Oct 18, 113.10): Prospect for a break of 111.50 has increased.
We have held the same since last Thursday (11 Oct, spot at 112.15) wherein the current weakness in USD is viewed as a correction that has scope to extend to 111.50. We indicated, “a sustained decline below this level seems unlikely”. While the price action since then is in line with our expectation (USD dipped to a low 111.61 yesterday), the prospect for a break of 111.50 has increased. A clear break of this level would suggest a deeper pull-back towards 111.00. All in, USD is expected to stay under pressure until it can reclaim the current ‘key resistance’ at 112.70 (level previously at 113.00).
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