GBP/USD: GBP expected to trade with a ‘downside bias’ to 1.2340, possibly 1.2300.
The week-long ‘sideway-trading phase’ that started on (19 Jul, spot at 1.2540) has ended as GBP not only cracked the bottom of our expected 1.2400/1.2580 range last Friday (26 Jul) but also registered a fresh year-to-date (and two-year) low of 1.2377. While further GBP weakness would not be surprising, we have doubts about the sustainability of any decline (would prefer to see GBP spend a longer time unwinding from oversold conditions). For now, we expect GBP to trade with a ‘downside bias’ to 1.2340. A dip below this level is not ruled out but note that there is another relatively strong support at 1.2300. On the upside, GBP has to reclaim 1.2460 in order to indicate that the current weakness has stabilized.
AUD/USD: AUD could weaken further to 0.6870 but expect solid support near 0.6830.
While we detected the improvement in momentum last Friday (26 Jul, spot at 0.6950) and cautioned that the ‘downside bias’ that started on Wednesday (24 Jul, spot at 0.7000) could “weaken further”, the ease of which AUD took the mid-July low near 0.6910 came as a surprise (low of 0.6903). Note that AUD closed lower for the sixth straight day on Friday; the last time we witnessed such extended decline was in early to mid-June (AUD subsequently reversed its decline as it rebounded strongly from 0.6835). From here, we see chance of AUD weakening to 0.6870 but for now, the June’s low near 0.6830 is expected to offer solid support. On the upside, the ‘key resistance’ has moved lower to 0.6975 from 0.7005. AUD has to break the ‘key resistance’ in order to indicate that the downward pressure has eased.
NZD/USD: Mid-July low near 0.6565 is unlikely to come into the picture unless there is a NY close below 0.6610.
As highlighted last Friday (26 Jul, spot at 0.6660), a break of 0.6645 would increase the risk of further NZD weakness to 0.6610. While NZD took out 0.6645 without much difficulty (low of 0.6626), the current weak phase in NZD that started last Tuesday (24 Jul, spot at 0.6705) appears to be running too fast, too soon and NZD has to register a NY closing below 0.6610 or the mid-July low near 0.6765 is unlikely to come into the picture this time round. All in, NZD is expected to stay under pressure until it can reclaim 0.6690 (level was at 0.6725 last Friday).