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Thomson Reuters
Oct 25 - 01:24 AM
First appeared on eFXplus on Oct 24 - 11:34 PM

EUR/USD: Neutral (since 21 Aug 18, 1.1485): Ample room for EUR to weaken further to 1.1350.

We highlighted yesterday “time appears to be running out for further weakness” and the subsequent swift and sharp plunge in EUR came as a surprise, albeit a pleasant one. We have been anticipating a move to 1.1400 since last Friday (19 Oct, spot at 1.1455) wherein we indicated that the “major 1.1400 support appears to be vulnerable”. EUR tested our ‘resolve’ by holding above 1.1430 for close to a week before finally caving in. Despite yesterday’s sharp drop, we believe it is premature to expect the start of a bearish phase. However, there appears to be ample room for EUR to weaken further to 1.1350 in the coming days. The next support is obviously at the year-to-date low near 1.1300 and at this stage, the prospect for a sustained break of this level is not high. That said, as long as the ‘key resistance’ at 1.1480 (level previously at 1.1550) is intact, the odds for a fresh low would continue to increase.

GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): Next level to focus on is at 1.2790.

We first highlighted the possibility of a move to 1.2920/25 last Friday (19 Oct, spot at 1.3020) wherein we indicated a “break of 1.3000 would shift the focus to 1.2920/25”. The price action since then is line with our expectation even though the ease of which the strong 1.2920/25 level was taken out came as a surprise. We noted yesterday (24 Oct, spot at 1.2985), “looking ahead, a break of 1.2920/25 would suggest GBP is ready to tackle next support at 1.2870”. It seems that we have underestimated the strength of the current weakness as GBP plummeted to an overnight low of 1.2867. At this stage, there is no sign that GBP is ready for a bottom just yet and the next level to focus on is at 1.2790. All in, we continue to expect GBP to stay under pressure until it can reclaim the ‘key resistance’ at 1.2990 (level previously at 1.3080).

AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): AUD to trade with downward bias. No change in view.

There is not much to add to yesterday’s (23 Oct, spot at 0.7080) update. As highlighted, “the prospect for a break of the year-to-date low of 0.7041 has increased, albeit not by much”. AUD subsequently dipped to a 2-week low of 0.7056 before rebounding quickly to end the day slightly higher (NY close of 0.7087, +0.06%). Overall, we continue to hold the same view wherein we expect AUD to trade with a slight downward bias for the next few days. Only a break above 0.7140 would suggest that the current mild downward pressure has eased. Looking ahead, a break of 0.7040 would shift the focus to the round number support of 0.7000.

NZD/USD: Neutral (since 20 Aug 18, 0.6625): NZD to trade sideways for now.

While the decline in NZD yesterday was relatively large (NY close of 0.6523, -0.45%), the registered low of 0.6519 is comfortably above the bottom of our expected 0.6490/0.6620 consolidation range. That said, the underlying tone has clearly weakened and a dip below 0.6490 is not ruled out but at this stage, we do not expect a sustained decline below this level. In other words, we continue to expect NZD to trade sideways, likely within a 0.6490/0.6580 range (narrower than the 0.6490/0.6620 range expected previously). Looking ahead, a clear break 0.6490 would suggest that NZD is ready to tackle the next support at 0.6460.

USD/JPY: Neutral (since 09 Oct 18, 113.10): Break of 111.80 would suggest further USD weakness to 111.20.

We held the same view since last Thursday (18 Oct, spot at 112.65) wherein “USD has moved into a consolidation phase” and is expected to trade sideways within a 111.80/113.30 range. The price action since then is line with our expectation as USD traded sideways between 111.93 and 112.88 for the past several days. That said, the soft daily closing in NY (112.25, -0.16%) has weakened the underlying tone and from here, the risk of a clear break of 111.80 has increased. A break of this level would suggest USD could weaken further to the next support at 111.20. All in, USD is expected to stay under pressure unless it can break above the ‘key resistance’ at 112.80.

UOB Research/Market Commentary


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