EUR/USD: Neutral (since 21 Aug 18, 1.1485): Immediate bias is for EUR to probe the bottom of the expected 1.1470/1.1640 range.
EUR dipped below last week’s 1.1527 low and touched 1.1524 yesterday before staging a surprisingly robust recovery. Despite the strong bounce, we continue to detect a weak underlying tone and see chance for EUR to probe the bottom of the expected 1.1470/1.1640 consolidation range. At this stage, a clear break below 1.1470 seems unlikely. All in, the outlook for EUR remains as neutral and even if there is a break above 1.1640, we do not expect any gains to be sustained.
GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): Still neutral but corrective rebound could extend to 1.3170.
GBP continues to trade in a volatile manner as it dropped to a low of 1.2898 yesterday before rocketing to hit an overnight high of 1.3052 (after Barnier’s comments). The overnight high was just above the top of our expected 1.2800/1.3050 consolidation range and the subsequent strong daily closing in NY suggests there is room for further GBP gains. That said, it is too soon to expect a shift to a bullish phase even though GBP could test 1.3170 from here. For now, we view any strength as a corrective rebound and not the start of a sustained up-move. On the downside, only a break of 1.2900 would indicate that the prevalent upward pressure has eased.
AUD/USD: Bearish (since 03 Sep 18, 0.7185): Outlook is still clearly bearish, expect further AUD weakness to 0.7035. No change in view.
We have been bearish AUD since early this month (see update on 03 Sep, spot at 0.7185) but indicated that we are mindful of the longterm 0.7145/60 support zone. AUD held above this support zone for several days and we warned last Thursday (06 Sep, spot at 0.7195) that “AUD has to break the major support soon”. The support zone finally cracked last Friday as AUD plunged to a low of 0.7099. From here, the outlook is still clearly bearish and we anticipate further AUD weakness to 0.7035, with decent odds for further extension to 0.7000. That said, in view of the oversold conditions, AUD may not be able to maintain the current pace of decline. On the upside, the ‘stop-loss’ level is adjusted to 0.7195 from 0.7260. On a shorter-term note, 0.7160 is already a strong resistance.
NZD/USD: Neutral (since 20 Aug 18, 0.6625): Scope for further NZD weakness to 0.6475. No change in view.
We have held a negative view on NZD since last Wednesday (05 Sep, spot at 0.6550) and expect NZD to weaken to 0.6475. After coming close to taking out the ‘key resistance’ at 0.6620 (high of 0.6616 on Thursday), NZD plunged last Friday and registered a fresh year’s low of 0.6528 (albeit marginally below the previous low of 0.6530). While the immediate pressure is still on the downside, we are not convinced that the current weakness can move below 0.6475 in a sustained manner. That said, only a break back above 0.6590 would indicate that a short-term low is in place (‘key resistance’ previously at 0.6620).
USD/JPY: Neutral (since 23 Jul 18, 111.20): Still neutral, USD could continue to trade in a choppy manner. No change in view.
USD dipped to a low of 110.37 last Friday before rebounding sharply to end the day on a firm note. The volatile price action continues to cloud the immediate outlook and we are maintaining our neutral USD stance for now. Further choppy price actions would not be surprising and only a break out of last month’s 109.76/112.14 range would suggest that USD is ready for a directional move.