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Thomson Reuters
May 23 - 01:24 AM
Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY - UOB
First appeared on eFXplus on May 23 - 12:00 AM

EUR/USD: 

24-HOUR VIEW: EUR is expected to trade sideways, likely within a 1.1130/1.1185 range. EUR traded sideways between 1.1145 and 1.1180 yesterday, narrower than our expected 1.1150/1.1195 range. Momentum indicators are still mostly ‘flat’ which indicate EUR could continue to trade sideways. However, the slightly weakened underlying suggests a lower trading range of 1.1130/1.1185.

1-3 WEEKS VIEW: Underlying tone has weakened, risk of a break of 1.1130 has increased. There is not much to add as EUR traded in a subdued manner and ended the day largely unchanged at 1.1152 (-0.05%). We have maintained the same narrative since last Wednesday (15 May, spot at 1.1205) wherein EUR is in a “sideway-trading phase” and “the immediate bias is tilted to the downside but 1.1130 is a solid support and is unlikely to yield so easily”. While there is no change in our view, the underlying tone in EUR has weakened and from here, the risk for a break of 1.1130 has increased (note the past week low has been 1.1140 on Tuesday, 21 May). That said, it is too soon to expect EUR to crack last month’s low at 1.1110. Overall, EUR is expected to stay under mild downward pressure unless it can move above 1.1210 (no change in ‘key resistance’ level)

GBP/USD: 

24-HOUR VIEW: GBP is expected to retest the 1.2625 level but oversold conditions suggests a drop below 1.2600 is unlikely. Our expectation for sideway trading was incorrect as GBP dropped sharply to 1.2625 before recovering. While the decline is oversold, it is too early to expect a sustained rebound. From here, barring a move above 1.2720 (minor resistance is at 1.2700), GBP is expected to retest the 1.2625 level. In view of the oversold conditions, a sustained drop below 1.2600 is not expected.

1-3 WEEKS VIEW: Weakness is severely oversold but 1.2600 is beckoning. 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.

AUD/USD: 

24-HOUR VIEW: AUD is expected to trade sideways, likely between 0.6865 and 0.6900. While AUD traded sideways as expected, the registered range of 0.6874/0.6897 was narrower than our expected range of 0.6865/0.6915. The quiet price offers no fresh clues and AUD is expected to continue to trade sideways for now, likely between 0.6865 and 0.6900.

1-3 WEEKS VIEW: Prospect for a move to 0.6835 has diminished. No change in view from yesterday, see reproduced update below. AUD surrendered all the post-election gains made on Monday as talk of rate cut by RBA sent it tumbling to an overnight low of 0.6866. Despite the relatively rapid drop, downward momentum has not improved by much. While the negative phase that started in late April is still intact, the price action over the past couple of days suggests the prospect for AUD to extend its weakness to 0.6835 has diminished. To put it another way, the negative phase to be struggling to maintain its downward momentum. From here, 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. Conversely, if AUD were to move above the 0.6945 ‘key resistance’ (level was at 0.6975 yesterday), it would indicate the end of the current negative phase and the start of a ‘sideway-trading’ phase.

NZD/USD: 

24-HOUR VIEW; NZD is expected to drift lower but 0.6465 is unlikely to come under serious threat. We highlighted yesterday “NZD could dip below the major 0.6500 support but 0.6485 is unlikely to come into the picture”. NZD subsequently dipped to 0.6493 before settling on a soft note at 0.6495. While downward pressure is beginning to wane, it is too soon to expect a sustained recovery. From here, barring a move above 0.6520, NZD is expected to drift lower even though the next major support at 0.6465 is unlikely to come under serious threat.

1-3 WEEKS VIEW: NZD could continue to edge lower but 0.6465 is expected to offer solid support. No change in view from yesterday, see reproduced update below. However, ‘key resistance’ has moved lower to 0.6545 from 0.6560. We have maintained the same narrative for about two weeks (see update on 08 May, spot at 0.6560) wherein NZD is “expected to test the rising weekly trend-line at 0.6500”. NZD finally touched 0.6500 yesterday (21 May) and is currently holding just above this solid support level. While the 2-week down-move is moving into oversold territory, it is too soon to expect an end to the current negative phase. Only a move above 0.6560 (‘key resistance’ previously at 0.6600) would indicate that a short-term bottom is in place. Until then, NZD could continue to edge lower but 0.6465 is expected to offer solid support. The next support below 0.6465 is at the 2018 low of 0.6425. Unless NZD can ‘accelerate’ downwards within the next few days, the odds for a move to 0.6425 are not high for now.

USD/JPY: 

24-HOUR VIEW: USD is expected to trade sideways, likely within a 110.00/110.50 range. We expected USD to “test 110.80 first before easing off” yesterday. The expectation did not materialize as it eased off quickly from a high of 110.62. Upward pressure has dissipated and for today, USD is unlikely to move above the 110.62 high. The current movement is viewed as part of a consolidation range and USD is expected to trade sideways to slightly lower, likely within a 110.00/110.50 range.

1-3 WEEKS VIEW: USD has moved into a sideway-trading phase. No change in view from yesterday, see reproduced update below. We indicated yesterday (21 May, spot at 110.05) that USD has “moved into a sideway-trading phase” and added, “the immediate bias is tilted to the upside but for now, any USD strength is unlikely to move significantly above the top of the expected 109.40/110.80 range”. We continue to hold the same view but the rapid rise yesterday suggests USD could trade sideways at a higher range than currently expected. That said, USD has to break the strong 110.80 level in order to indicate that it has moved into a higher trading range.

Source:
UOB Research/Market Commentary

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