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May 17 - 01:24 AM
First appeared on eFXplus on May 17 - 12:00 AM


24-HOUR VIEW: Further weakness in EUR appears likely but 1.1130 could be just out of reach. EUR came close to the top of our expected 1.1185/1.1230 range before dropping sharply after touching 1.1225. The swift decline touched 1.1164 during late NY hours. Downward momentum has improved and further weakness appears likely even though the strong 1.1130 support could be just out of reach for today (minor support at 1.1150). Resistance is at 1.1195 followed by 1.1210. The 1.1225 high is not expected to come into the picture.

1-3 WEEKS VIEW: EUR is expected to continue to trade sideways. EUR dropped to 1.1164 yesterday before ending the day lower by -0.25% (NY close of 1.1172). Despite the relatively strong decline, downward momentum has not improved by that much. For now, we continue to hold the view that EUR is in a “sideway-trading phase” even though as highlighted on Wed (15 May, spot at 1.1205), the “immediate bias is tilted to the downside” but “1.1130 is a solid support and is unlikely to yield so easily”. To put it another way, the prospect for a break of 1.1130 is not high but it would continue to increase unless EUR can reclaim 1.1225 within these 1 to 2 days. Looking forward, a break of 1.1130 would indicate that EUR has moved into a ‘negative phase’ and the risk for a break of last month’s 1.1110 low would then increase considerably.


24-HOUR VIEW: GBP could move below the Feb’s low near 1.2775 but 1.2740 may not come into the picture. We expected GBP to weaken yesterday but were of the view that the “prospect for a sustained decline below 1.2800 is not high”. The weakness exceeded our expectation as GBP dropped to an overnight low of 1.2788 before ending the day just below 1.2800 (NY close of 1.2798). The decline is over-extended but is not showing sign of stabilizing. From here, barring a move above 1.2850 (minor resistance at 1.2825), GBP is expected to move below the Feb’s low near 1.2775. However, the next support 1.2740 may not come not into the picture today.

1-3 WEEKS VIEW: A NY close below 1.2775 could lead to acceleration lower to 1.2670. We highlighted on Wednesday (15 May, spot at 1.2910) that GBP “has moved into a negative phase” and while the price action over the past couple of days was in line with our expectation, the pace of decline has been more rapid than anticipated. The 1.2775 low indicated yesterday (16 May) appears to be within reach soon and if GBP were to close below this level in NY by the end of today, we would expect the current weakness in GBP to accelerate lower. The next major support is about another 100 pips lower at 1.2670. After the sharp drop over the past two days, it is unlikely the current negative phase would end anytime soon. Only an unlikely move above the 1.2900 ‘key resistance’ (level was at 1.2960 yesterday) would indicate a short-term bottom is in place. Shorter-term, 1.2850 is already a strong level.


24-HOUR VIEW: Decline in AUD has scope to extend to 0.6865. AUD staged a mild recovery to 0.6933 before dropping to a low of 0.6886 during late NY hours. The swift decline has scope to extend lower towards 0.6865. The next support at 0.6835 is likely out of reach for today. On the upside, 0.6933 is expected to be strong enough to cap any intraday recovery (0.6915 is already a strong level).

1-3 WEEKS VIEW: A NY closing below 0.6885 could lead to further AUD weakness to 0.6835. No change in view from yesterday, see reproduced update below. From here, a daily closing below 0.6885 would not be surprising. The ‘focus level’ of 0.6910 that was indicated on Tuesday (14 Apr, spot at 0.6945) was just exceeded as AUD dropped to 0.6893 after the release of Australian jobs data just a few minutes ago. The negative phase that started in late April is still clearly intact. From here, if there were a NY closing below 0.6885, it would indicate the negative phase has kicked into an even higher gear (next support at 0.6835). All in, AUD is expected to stay under pressure until it can move above the 0.6975 ‘key resistance’ (level was at 0.7010 previously.


24-HOUR VIEW: Month-to-date low of 0.6525 is vulnerable but odds for a break of 0.6500 are not high for today. We highlighted yesterday the underlying tone in NZD remains soft but “any weakness is likely limited to 0.6545”. We added, “the next support at 0.6525 is unlikely to come into the picture”. While NZD dropped below the 0.6545 level, 0.6525 remains intact (low of 0.6534 during late NY hours). The strong decline indicates the month-to-date low of 0.6525 is vulnerable today but the odds for NZD to break the next support at 0.6500 are not high, at least for today. Resistance is at 0.6560; yesterday’s high at 0.6583 is not expected to be challenged.

1-3 WEEKS VIEW: NZD is expected to test the rising weekly trend-line at 0.6500. We have maintained the same narrative since last Wednesday (08 May, spot at 0.6560) wherein NZD is expected to “test the rising weekly trend-line at 0.6500”. After trading sideways for several days, NZD finally staged a relatively strong decline of -0.41% yesterday (close at 0.6536). From here, the risk of a break of 0.6500 has increased and if NZD were to move clearly below this level, the focus would then shift to 0.6465 followed by the 2018 low near 0.6425. All in, there is no early sign that the current negative phase that started earlier this month would end any time soon. Only a move above 0.6600 (‘key resistance’ previously at 0.6630) would indicate that a short-term bottom is in place.


24-HOUR VIEW: Room for USD to test 110.10 before an easing of the current upward pressure can be expected. Expectation for USD to trade sideways was incorrect as it rose to a high of 109.96 before ending the day on a firm note at 109.84. Despite the relatively strong advance, upward momentum has not improved by much. That said, there is room for USD to test the strong 110.10 resistance before an easing of the current upward pressure can be expected. Support is at 109.60 but only a move below 109.40 would indicate a short-term top is in place.

1-3 WEEKS VIEW: USD appears to be poised to move into a sideway-trading phase. USD touched 109.96 yesterday, not too far from our 110.10 ‘key resistance’. Downward pressure has eased and if USD to move above 110.10, it would indicate that the current negative phase has ended (and the start of a sideway-trading phase). From here, unless USD can move and stay below 109.40 by end of today, a breach of the ‘key resistance’ would not be surprising. In other words, the negative phase that started on 06 May appears to be close to ending and USD is poised to move into a sideway-trading phase.

UOB Research/Market Commentary


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