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Thomson Reuters
Oct 26 - 01:24 AM
First appeared on eFXplus on Oct 25 - 11:11 PM

EUR/USD: Neutral (since 21 Aug 18, 1.1485): EUR is still weak, but prospect for a sustained break below the year-to-date low of 1.1297 is not that high.

We highlighted yesterday, there is “ample room for EUR to weaken further to 1.1350”. EUR staged a minor bounce after ECB’s announcement but plummeted subsequently and hit a low of 1.1353. While there is no sign the ‘negative’ phase that started late last week (18 Oct, spot at 1.1505) is stabilizing, short-term indicators are at severely oversold levels and it is unlikely EUR can maintain the pace of its current decline (see 24-hour update above). From here, a dip below 1.1350 is not ruled out but at this stage, the prospect for a sustained break below the year-to-date low of 1.1297 is not that high. That said, as long as the ‘key resistance’ at 1.1450 (level previously at 1.1480) is intact, the odds for a fresh low would continue to increase.

GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): Dip below 1.2790 not ruled out but weakness could be limited to 1.2750.

We highlighted yesterday, “there is no sign that GBP is ready for a bottom just yet and the next level to focus on is at 1.2790”. However, the subsequent rapid pace of decline that hit a low of 1.2795 was not exactly expected. We still see 1.2790 as a strong support and while a dip below this level is not ruled, severely oversold short-term conditions could ‘limit’ any further weakness to 1.2750. All in, GBP is expected to remain under pressure until it can reclaim the ‘key resistance’ at 1.2920 (level previously at 1.2990). Looking ahead, only a daily closing below 1.2750 would suggest that GBP is ready to tackle the year’s low at 1.2662.

AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): AUD to trade with downward bias.

AUD traded in a ‘quiet’ manner over the past few days and there is not much to add. We continue to hold the same view wherein we expect AUD to trade with a slight downward bias. Only a break above 0.7140 would suggest the current mild downward pressure has eased. Looking ahead, a break of the year-to-date low at 0.7041 would shift the focus to 0.7000.

NZD/USD: Neutral (since 20 Aug 18, 0.6625): NZD to trade sideways for now. No change in view.

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.

USD came within one pip of the 111.80 support before staging a surprisingly robust recovery. We indicated yesterday, the risk of a break of 111.80 has increased and a “break would suggest further USD weakness to 111.20”. We continue to hold the same view and only a move above 112.80 (no change in ‘key resistance’) would indicate that the current downward pressure has eased. Looking ahead, a break of 112.80 would not signify the start of a sustained up-move but suggest that USD is still ‘caught’ within a 111.80/113.30 consolidation range.

UOB Research/Market Commentary


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