Markets are gearing up for the all-important Fed decision on Wednesday. What technical levels should we watch?
Here is their view, courtesy of eFXdata:
EUR/USD: EUR is still under pressure but too early to tell if it could move and stay below 1.1100.
After EUR traded within a wide range of 1.1100/1.1187 last Thursday (25 Jul), we indicated on Friday (26 Jul, spot at 1.1145) that it is “too early to tell whether EUR could move and stay below 1.1100”. We added, “EUR could consolidate and trade sideways for a few days”. From that perspective, the relatively quiet price action over the past couple of days was not surprising (EUR traded between 1.1110 and 1.1150 for the past two days). At this stage, it is still not clear whether EUR could move and stay below 1.1100. That said, the downside risk is clearly higher and only a break of the 1.1200 ‘key resistance’ (no change in level) would indicate that the recent weakness in EUR has stabilized.
GBP/USD: GBP in a ‘negative phase’, could trade to 1.2110.
While we expected GBP to trade with a ‘downside bias’ yesterday (29 Jul, spot at 1.2380), we indicated we have “doubts about the sustainability of any decline”. The manner of which GBP subsequently crashed through our support levels at 1.2340 and 1.2300 has put our doubts to rest. From here, instead of trading with a ‘downside bias’, GBP is deemed to have move into a ‘negative phase’ and could weaken further to the next support at 1.2110. Only a move above the 1.2335 ‘key resistance’ (level was a strong resistance at 1.2460 yesterday) would indicate that the current weakness in GBP has stabilized.
USD/JPY: USD is expected to test the solid 109.00 resistance.
There is not much to add to the update from last Friday (26 Jul, spot at 108.65). As highlighted, while USD is “expected to test the solid 109.00 resistance”, it is unclear for now if USD can maintain a toehold above this level. The lackluster price action over the past couple of days offers no fresh clue and USD has to ‘punch’ above 109.00 and register a NY closing above this level in order to indicate that it is ready to tackle 109.60. Meanwhile, 108.10 is still acting as a strong support and only a break of this level would indicate that the current mild upward pressure has waned.