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The USD enjoys fresh highs in yields. What ´s next for currencies?

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.

We have held the same view since last Thursday (04 Oct, spot at 1.1480) wherein a “break of 1.1450 would shift the focus to 1.1390″. EUR subsequently touched 1.1462 but was not able to make much headway on the downside. We indicated yesterday (08 Oct, spot at 1.1525) that while the outlook for EUR is still ‘negative’, the “prospect for a move to 1.1450 have diminished” and warned that EUR “should head lower soon or the risk of a short-term bottom would increase quickly”. EUR edged below last week’s 1.1462 low and touched 1.1457 during late London hours yesterday but the decline was short-lived. The price action suggests that 1.1450 is acting as solid support and may not yield so easily. That said, only a break of the 1.1580 ‘key resistance’ (no change in level) would indicate that a short-term bottom is in place. Until then, there is still chance that EUR could break 1.1450 but time is not on the side for those looking for a move to 1.1390.

GBP/USD:  Neutral (since 21 Aug 18, spot at 1.2795): Still neutral but GBP likely to probe the top of the expected 1.3030/1.3220 range.  No change in view.

While we indicated last Friday “the odds for further GBP weakness have clearly diminished”, the pace and extent of the subsequent rally in GBP was not expected (over Thursday and Friday, GBP gained a whopping +1.43%, the largest 2-day gain in 8 months). At this stage, we continue to hold a neutral stance and view the current GBP strength as part of a higher trading range. In other words, we do not expect a sustained up-move from here. That said, the immediate bias is on the upside and for the next few days, we expect GBP to probe the top of the expected 1.3030/1.3220 consolidation range.

AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): Scope for AUD to test 0.7000.  No change in view, see update from yesterday below.

We indicated last Thursday (04 Oct, spot at 0.7100) that “AUD is under pressure” and added the “the major 0.7030 support could be out or reach”. The pace of the anticipated weakness in AUD exceeded our expectation but extreme oversold indicators continue to suggest that the current AUD weakness may not be sustainable. That said, there is scope for a test of the next support at 0.7000 and we would likely upgrade the current ‘negative’ outlook for AUD to ‘bearish’ upon a clear break below this level. Meanwhile, AUD is expected to stay under pressure unless it can break above the 0.7110 ‘key resistance’ (level previously at 0.7175).

NZD/USD: Neutral (since 20 Aug 18, 0.6625): Room for NZD to test 0.6400.  No change in view, see update from yesterday below.

We have held the same view since last Thursday (04 Oct, spot at 0.6505) that “further NZD weakness is expected to 0.6450″. However, the anticipated strong support at 0.6450 did not materialize as NZD cracked this level on Friday and dropped to a low of 0.6433. From here, we see room for NZD to test 0.6400 and we would likely upgrade the current ‘negative’ outlook to ‘bearish’ if there is a clear break below this level. On the upside, the ‘key resistance’ has moved lower to 0.6510 from 0.6550.

USD/JPY:  Shift from bullish to neutral: USD has moved into a correction phase.

USD broke the 113.50 ‘stop-loss’ for our bullish view and dropped sharply to a low of 112.81 yesterday. The price action suggests that the ‘up-leg’ from the early September low of 110.37 has ended at 114.54 last week and our target at 114.75 was not met. Note that we turned ‘positive’ on USD on 12 Sep (spot at 111.60) and shifted to ‘bullish’ last Tuesday (02 Oct, spot at 113.95). The current movement is viewed as the early stages of a correction phase and USD is expected to trade with a negative bias from here. However, it is premature to expect the start of a major bearish reversal and at this stage, we view any weakness as part of a 112.50/114.00 range. Looking further ahead, there is risk of deeper pull-back to 112.00 but the odds for such a move are not high for now.

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