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Thomson Reuters
May 24 - 01:24 AM
First appeared on eFXplus on May 24 - 12:00 AM


24-HOUR VIEW: Rebound in EUR has scope to extend but 1.1210 is expected to offer solid resistance. Expectation for EUR to trade sideways was incorrect as it dived to 1.1106 before rebounding strongly. While the rapid recovery appears to be running ahead of itself, there is scope for it to extend higher. That said, any further advance in EUR is expected to face solid resistance at 1.1210 (next resistance is at 1.1230). On the downside, 1.1130 is likely strong enough to hold any intraday pull-back (minor support is at 1.1160).

1-3 WEEKS VIEW: EUR is likely to trade sideways. While we indicated yesterday (23 May, spot at 1.1155) that the “risk of a break of 1.1130 has increased”, we were of the view “it is too soon to expect EUR to crack last month’s low at 1.1110”. Expectation for a “break of 1.1130” was correct but the move below 1.1110 (low of 1.1106) and the subsequent sharp rebound that hit an overnight high of 1.1187 came as a surprise (the 81-pips range registered yesterday is the largest 1-day range in a month). The price action yesterday has clouded the outlook even though the manner of which EUR rebounded ahead of 1.1000 suggests we may have seen a short-term bottom at 1.1106. That said, it is premature to expect a sustained rebound. For the next couple of weeks, EUR is more likely to consolidate and trade sideways, likely within a 1.1130/1.1230 range.


24-HOUR VIEW: Short-term bottom in place, GBP is expected to trade sideways to slightly higher, likely within a 1.2630/1.2710 range. Yesterday, we expected GBP to “retest the 1.2625 level but oversold conditions suggest a drop below 1.2600 is unlikely”. In line with expectation, GBP touched 1.2605 before staging a surprisingly robust recovery (NY close of 1.2657). The combination of oversold conditions and dissipating downward momentum suggests 1.2605 is likely a short-term bottom (GBP is not expected to move below this level for today). That said, it is too soon to expect an extended recovery. GBP is more likely to consolidate and trade sideways to slightly higher, likely within a 1.2630/1.2710 range.

1-3 WEEKS VIEW: Weakness is severely oversold but 1.2600 is beckoning. There is not much to add to the update from yesterday (see reproduced update below). GBP came very close to 1.2600 as it touched 1.2605 before staging a robust recovery. After yesterday’s price action, the beckoning call of 1.2600 has softened.While we indicated on Tuesday (21 May, spot at 1.2735) that the “focus is at 1.2670”, we were of the view “oversold conditions suggest the prospect for further extension to the next support at 1.2630 is not high”. However, GBP extended its decline as it plummeted to 1.2625 during NY hours before recovering. Despite the relatively large drop, we still have doubts on whether the current ‘negative phase’ that started in mid-April (see annotations in chart below) could extend further. From here, the next support is at 1.2600 but once below this level, the next significant support is another 100 pips lower at 1.2500. On the upside, only a move above 1.2760 (‘key resistance’ previously at 1.2840) would indicate that the ‘negative phase’ has ended. Meanwhile, the round number support of 1.2600 is beckoning.


24-HOUR VIEW: Room for AUD to advance but lackluster momentum suggests any up-move could be limited to 0.6925. AUD traded between 0.6865 and 0.6900 yesterday, right within our expected range of 0.6865/0.6900. The firm daily closing in NY (0.6899) suggests there is room for AUD to advance from here. That said, lackluster momentum indicates that any up-move is likely limited to a test of 0.6925. The next resistance at 0.6945 is a solid level and is unlikely to be challenged. Support is at 0.6885 followed by the 0.6865 low. The latter level is acting as a very strong support now.

1-3 WEEKS VIEW: Prospect for a move to 0.6835 has diminished. There is no change to our latest narrative from Tuesday (21 May, spot at 0.6925) wherein the “prospect for a move to 0.6835 has diminished”. We added on Wednesday (22 May), “AUD has to ‘punch’ below last week’s 0.6865 low and accelerate lower or the risk of a short-term bottom would increase quickly”. It is worth noting that AUD touched 0.6865 yesterday (23 May) before rebounding strongly. While it appears increasingly likely that the ‘negative phase’ in AUD that started in late April (see annotations in chart below) is close to ending, confirmation of a short-term bottom is only upon a move above the ‘key resistance’ at 0.6945 (no change in level).


24-HOUR VIEW: Further up-move would not be surprising but a move beyond 0.6545 appears unlikely. Expectation for NZD to “drift lower to 0.6465” did not materialize as it rebounded strongly after touching 0.6482. The rapid rise is running ahead of itself and while further up-move would not be surprising, a move beyond 0.6545 appears unlikely (there is another strong resistance at 0.6560). On the downside, the 0.6482 low is not expected to come into the picture (minor support is at 0.6505).

1-3 WEEKS VIEW: NZD could be close to making a short-term bottom. NZD dipped to 0.6485 yesterday (23 May) before rebounding strongly to end the day higher by +0.36% at 0.6519 (largest 1-day gain in 3 weeks). The price action is not surprising as we indicated on Wednesday (22 May) that “NZD could continue to edge lower but 0.6465 is expected to offer solid support”. The combination of waning momentum and oversold conditions suggests the ‘negative phase’ that started earlier this month is close to completion. In other words NZD could be close to making a short-term bottom even though confirmation is only upon a move above the 0.6560 ‘key resistance’ (no change in level). From here, unless NZD can ‘punch’ below 0.6485 within these 1 to 2 days, a breach of 0.6560 would not be surprising. Looking ahead, a move above 0.6560 would indicate that NZD has moved into a ‘sideway-trading phase’.


24-HOUR VIEW: USD could dip below the strong 109.40 support but last week’s low near 109.00 is unlikely to come under threat. While we highlighted yesterday “upward pressure has dissipated”, we expected USD to “trade sideways within a 110.00/110.50 range”. The ease of which USD cracked 110.00 and the subsequent plunge to 109.45 came as a surprise. The sharp decline is running too fast, too soon but the weakness is not showing sign of stabilizing just yet. From here, barring a move above 110.00 (minor resistance at 109.75), USD could dip below the strong 109.40 support but last week’s low near 109.00 is unlikely to come under threat.

1-3 WEEKS VIEW: USD has moved into a sideway-trading phase. We have held the same view since Tuesday (21 May, spot at 110.05) that USD has “moved into a sideway-trading phase”. USD subsequently came close to the top of our expected 109.40/110.80 sideway-trading range (high of 110.67) before diving yesterday to an overnight low of 109.45, just above the bottom of our expected range. For now, there is no change to our view but we are not ruling out a dip below 109.40. That said, only a break of 109.00 would indicate that the current ‘sideway-trading’ phase has morphed into a ‘negative’ one.

UOB Research/Market Commentary


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