EUR/USD: Neutral (since 05 Jun 18, 1.1700): EUR is under pressure but 1.1570 is expected to offer solid support.
The sharp decline of -0.74% yesterday (largest 1-day drop in a month) was not expected. Our previous expectation for EUR to trade at a higher 1.1640/1.1850 consolidation range is not valid anymore. While downward pressure has increased, it is too early to expect the start of a bearish phase. That said, we expect EUR to stay under pressure even though any weakness is expected to encounter solid support at 1.1570 (last week’s low). Looking further ahead, a break of 1.1570 would open up the way for a retest of the year-to-date low near 1.1505. At this stage, we apportion low odds for a clear break below 1.1505. On the upside, resistance is at 1.1690 followed by 1.1720. Only a break of 1.1720 would indicate that the current mild downward pressure has eased.
GBP/USD: Neutral (since 25 Jun, spot at 1.3265): Choppy price action has resulted in a mixed outlook.
The top of our expected 1.3050/1.3250 consolidation range was untested as GBP dropped quickly from a high of 1.3213. As highlighted in recent updates, the choppy price action in GBP over the past several days has resulted in a mixed outlook and the near-term direction is unclear. For now, we continue to hold a neutral stance and expect GBP to trade in a whippy manner, likely within a 1.3010/1.3220 range (slightly lower than the previous expectation of 1.3050/1.3250 range).
AUD/USD: Neutral (since 05 Jul 18, 0.7380): Downside is more ‘sticky’ but break of y-t-d low of 0.7310 is unlikely.
AUD staged a surprisingly sharp drop yesterday and the top of our previously expected 0.7360/0.7485 consolidation range was not ‘probed’. The quick drop from a high of 0.7463 suggests that the downside is more ‘sticky’ now even though lackluster momentum indicates that any weakness is unlikely to break below the year-to-date low near 0.7310 (at least not within the next couple of weeks). All in, we continue to hold a neutral stance and expect AUD to trade on soft note, likely within a 0.7310/0.7440 range.
NZD/USD: Neutral (since 06 Jul, 0.6795): NZD is expected to trade sideways for now.
NZD touched a high of 0.6850 yesterday before dropping sharply. In recent updates, we expected NZD to “retest the month-to-date high near 0.6860” and after the sharp drop yesterday, it is likely 0.6850 is the extent of the ‘probe’. That said, there is no change to the current neutral outlook but NZD is expected to trade sideways for now, likely within a relatively broad 0.6710/0.6850 range.
USD/JPY: Neutral (since 23 Jul 18, 111.20): Outlook is neutral but a test of the 110.25 month-to-date low seems likely. No change in view.
We have held the same view since Monday (23 Jul, spot at 111.20) wherein while the outlook for USD is deemed as neutral, “the immediate pressure has shifted to the downside” and a “test of the month-to-date low near 110.25 would not be surprising”. The relatively weak daily close in NY yesterday bodes well for our view and we continue to anticipate the 110.25 level to be ‘tested’. In view of the current lackluster downward momentum, the prospect for a sustained break below this level is not high at this stage. All in, only a break back above the ‘key resistance’ at 111.80 would indicate that the current downward pressure has eased (ideally, USD should stay below 111.50 from here).