The US Dollar gave up some of its gains, especially against the recovering pound. What’s next for currencies as November begins?
Here is their view, courtesy of eFXdata:
EUR/USD: Neutral (since 21 Aug 18, 1.1485): EUR is still weak, but the prospect for a sustained break below the year-to-date low of 1.1297 is not that high.
We have maintained the same view since last Friday (26 Oct, spot at 1.1375) wherein “EUR is still weak, but the prospect for a sustained break below the year-to-date low of 1.1297 is not that high”. EUR came within 2 pips of 1.1297 yesterday but rebounded from a low of 1.1299 during NY hours. While we continue to hold the same view, we indicated yesterday (31 Oct, spot 1.1345), the odds for a break of 1.1297 has improved and would continue to improve unless EUR can break above the ‘key resistance’. The ‘key resistance’ is currently at 1.1400, slightly lower from 1.1415 yesterday. To put it another way, a NY closing below the year-to-date low would suggest EUR could continue to head south in the coming days while a break of the ‘key resistance’ would indicate that the recent weakness has stabilized and EUR has moved into a consolidation phase (and likely to trade sideways in the coming days).
GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): Negative phase has ended, GBP has moved into a correction phase.
The ‘negative’ phase in GBP that started about 2 weeks ago (see update on 19 Oct, spot at 1.3020) ended abruptly as Brexit headlines sent GBP blasting past the ‘key resistance’ at 1.2820 (GBP hit a high of 1.2831 during NY hours and extended its gain earlier this morning when more Brexit headlines crossed the wires). The sudden surge in GBP came as a surprise as after the steep decline on Tuesday (30 Oct), we were of the view that GBP could break the year-to-date low of 1.2662. The strong recovery in GBP suggests the 1.2697 low seen on Tuesday is a short-term bottom and we do not expect this level to come into the picture, at least not for the next one week or so. Despite the robust rebound, it is premature to expect a major bullish reversal. GBP has likely moved into a ‘correction’ phase and the current recovery could extend higher but at this stage, any further advance is likely limited to 1.2950.
AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): AUD is expected to trade sideways.
AUD surrendered some of the strong gains made on Tuesday (30 Oct) as it closed lower by -0.45% in NY (0.7074). The recent weak underlying tone appears to have stabilized and the current movement is viewed as part of a consolidation phase. In other words, we expect AUD to trade sideways from here, likely between 0.7040 and 0.7140. Looking ahead, a break of 0.7140 would suggest the start of a recovery phase that could potentially extend to 0.7200.
NZD/USD: Neutral (since 20 Aug 18, 0.6625): Still sideways albeit within a wider range. No change in view.
NZD hit a high of 0.6572 yesterday before ending the day on a strong note (NY close of 0.6553, +0.47%). The high was not far from the top of our expected 0.6460/0.6580 consolidation range. For now, the risk of a clear break of 0.6580 is not high but after yesterday’s price action, it has clearly improved. In other words, while we continue to expect NZD to trade sideways between 0.6460 and 0.6580, we would not be surprise with a break of 0.6580. Looking ahead, a break of 0.6580 would indicate that NZD is ready to tackle the month-to-date high at 0.6620.
USD/JPY: Neutral (since 09 Oct 18, 113.10): Scope for USD to test 113.70 but unclear if up-move can be sustained.
USD touched a 3-1/2 high of 113.38 yesterday before easing off quickly. We continue to see scope for USD to test 113.70 but as highlighted yesterday, it is unclear if any up-move can be sustained. On the downside, a break of 112.60 is enough to indicate that the current upward pressure has eased. All in, the recent whippy price action has clouded the near-term outlook even though on a short-term basis, USD could test 113.70 first.
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