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Thomson Reuters
Oct 10 - 09:48 AM
First appeared on eFXplus on Oct 09 - 10:59 PM

EUR/USD: Neutral (since 21 Aug 18, 1.1485): Still neutral but EUR is expected to trade sideways to slightly higher.

EUR finally cracked the 1.1450 support and dropped to a low of 1.1429 but the decline was short-lived as it rebounded strongly to end the day unchanged (NY close of 1.1489, 0.00%). We previously held the view that “a break of 1.1450 would shift the focus to 1.1390” but yesterday’s price action suggests that our expectation for further EUR weakness is unlikely to pan out. In other words, the ‘negative’ phase in EUR that started about two weeks ago (28 Sep, spot at 1.1640) has likely run its course and the 1.1429 low is deemed as a short-term bottom. That said, the outlook remains as neutral and EUR is expected to trade sideways to slightly higher in the coming days, likely within a 1.1450/1.1620 range.

GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): GBP is likely to test the top of the expected 1.3030/1.3220 range.

We have held the same view since Monday (08 Oct, spot at 1.3120) wherein we expect GBP to trade with an upside bias and probe the top of the anticipated 1.3030/1.3220 consolidation range. However, GBP tested the bottom of the range twice as it touched 1.3029 during London hours on Monday and 1.3034 yesterday (09 Oct). The strong bounce from the support level suggests that 1.3030 is likely strong enough to hold, at least for several more days. From here, the pressure has shifted to the upside and we expect GBP to test 1.3220 within these few days. At this stage, the prospect for a sustained break above this level is not high (the next resistance is at 1.3255 ahead of last month’s 1.3295 top).

AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): Still neutral; AUD to trade with a positive bias within a broad range.

We expected AUD to stay under pressure since late September (28 Sep, spot at 0.7205) and the break of the ‘key resistance’ at 0.7110 (high of 0.7115 at the time of writing) indicates that the ‘negative’ phase has ended. While there is no change to the current neutral outlook, AUD has likely made a short-term bottom at 0.7041 on Monday (we previously saw scope for AUD to test 0.7000). From here, we expect AUD to trade sideways albeit with a positive bias but any strength is viewed as part of 0.7050/0.7210 range and not the start of a sustained up-move.

NZD/USD: Neutral (since 20 Aug 18, 0.6625): Still neutral; NZD is expected to trade sideways.

We have expected NZD to weaken since last Thursday (04 Oct, spot at 0.6505) and while the ‘key resistance’ for our view at 0.6510 is still intact, the price action over the past couple of days suggests that NZD has likely found a short-term bottom at 0.6424 on Monday (our expectation for NZD to test 0.6400 did not materialize). There is no change to the overall neutral outlook but NZD is expected to trade sideways from here, likely within a 0.6430/0.6560 range.

USD/JPY: Neutral (since 09 Oct 18, 113.10): USD has moved into a correction phase.

We just shifted from a bullish to neutral stance yesterday (09 Oct, spot at 113.10) and there is no change to the view. As highlighted, the current movement is viewed as the early stages of a correction phase and USD is expected to trade with a negative bias from here. However, it is premature to expect the start of a major bearish reversal and at this stage, we view any weakness as part of a 112.50/114.00 range. Looking further ahead, there is risk of deeper pull-back to 112.00 but the odds for such a move are not high for now.


UOB Research/Market Commentary


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