Risk assets on the rise after the successful meeting between US President Trump and his Chinese counterpart Xi in Buenos Aires. What does it mean for currencies?
Here is their view, courtesy of eFXdata:
EUR/USD: Neutral (since 21 Aug 18, 1.1485): EUR is caught in a consolidation range for now.
We highlighted in recent updates that “a clear break above 1.1400 would ‘confirm’ that EUR has made a short-term bottom at 1.1264″. The 1.1400 level was much stronger than expected as EUR failed to break this level again on Friday (high of 1.1400 on Friday, 1.1401 on Thursday). The subsequent sharp pull-back from the high took out the 1.1315 ‘key support’ which indicates that the recent upward pressure has eased (low of 1.1302 in NY last Friday). In other words, our expectation for EUR to form a short-term bottom did not materialize and EUR is still likely caught in a consolidation range for now, likely between 1.1265 and 1.1400.
GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): GBP could move below the year-to-date low of 1.2662.
We highlighted early last Friday (30 Nov, spot at 1.2780) “in order for GBP to revive the deteriorating downward momentum, it has to move and stay below 1.2750 within these 1 to 2 days”. GBP closed just above 1.2750 in NY (1.2755) on Friday. Downward momentum has deteriorated further and unless GBP can close clearly below 1.2750 in NY within these 1 to 2 days, the risk of GBP moving below the year-to-date low of 1.2662 would slip away. Meanwhile, the ‘key resistance’ has moved lower to 1.2820 from 1.2850. A break of the ‘key resistance’ would indicate that the current mild downward pressure has eased.
AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): AUD is expected to move higher to 0.7410.
We have held the same view since last Thursday (29 Nov, spot at 0.7305) wherein the “the prospect of 0.7199 as a short-term bottom is quite high). We added, “confirmation of a short-term bottom is only upon a clear break above 0.7335/40″. AUD blast past this level early this morning as US/China trade war truce sent it rocketing (AUD gapped higher as it opened at 0.7370). As highlighted last week, a break of 0.7335/40 would indicate that AUD is “ready to tackle, 0.7380, 0.7410 in the coming weeks”. In other words, the current price action is in line with our expectation and from here, we are expecting AUD to move to 0.7410. The next resistance above this level is at 0.7455. On the downside, the ‘key support’ has moved higher to 0.7280 from 0.7240. On a short-term note, 0.7330 is already a strong support level.
NZD/USD: Neutral (since 20 Aug 18, 0.6625): Shift to bullish if NY closing is above 0.6920.
We have been anticipating a higher NZD since last Thursday (29 Nov, spot at 0.6865) and highlighted a NY close above 0.6885 would indicate that a short-term bottom is in place and “NZD would then move higher towards 0.6920 and likely beyond this level in the coming weeks”. NZD subsequently closed at 0.6884 last Friday before opening with a gap-up this morning at 0.6925. Upward momentum has clearly improved and from here, a NY closing above 0.6920 would indicate the start of a bullish phase (with an immediate target of 0.7000). On the downside, the ‘key support’ has moved higher to 0.6830 from 0.6780 previously.
USD/JPY: Neutral (since 09 Oct 18, 113.10): USD is expected to trade sideways for now.
We expected USD to “edge lower” since last Thursday (29 Nov, spot at 113.55) but it traded in a quiet manner and closed at about the same level on Thursday (113.47) and Friday (113.46). The mild downward momentum has eased and USD is still likely caught in a consolidation phase for now. In other words, we expect USD to trade sideways from here, albeit at a slightly higher range of 112.90/114.20 (from 112.70/114.00 previously).
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