EUR/USD: Neutral (since 21 Aug 18, 1.1485): Odds for a break of 1.1440 is slightly more than even. No change in view from yesterday.
We have held the same view since last Wednesday (20 Feb, spot at 1.1345) wherein the “immediate risk is on the upside but it is too soon to expect a sustained rise in EUR”. We highlighted the strong resistance levels at 1.1410 and 1.1440 and expected EUR to ‘struggle’ to break above 1.1440. After trading in a muted manner for several days, EUR finally stirred to life as it rose to a 3-week high of 1.1402 during late-NY hours. Upward momentum has perked up and the risk is still clearly on the upside. That said, 1.1440 continues to loom as a solid resistance and in order for EUR to break this level, it could not afford to ‘dither’. In other words, the price action within these few days is crucial in determining whether EUR can move above 1.1440. For now, the odds for a move above 1.1440 appear to be slightly more than even. Looking ahead, a ‘clean’ break of this level would suggest that EUR is ready to tackle the last month’s top at 1.1515. Overall, EUR is expected to stay underpinned until there is a break of the ‘key support’ at 1.1310 (level was at 1.1270 previously).
GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): Further GBP strength is still likely but 1.3365 may not come into the picture so soon.
The pace of the expected GBP strength continues to surprise us as it closed higher for the fourth straight day and tacked on a gain of +0.46% (NY close of 1.3311). As highlighted yesterday (27 Feb, spot at 1.3255), the ‘positive’ outlook for GBP that started last Wednesday (20 Feb, spot at 1.3070) is still intact even though we were the view that “1.3365 may not come into the picture so soon”. GBP subsequently touched 1.3351 during NY hours before easing off. Severely overbought short-term conditions could lead to a couple of days of consolidation first but as long as the ‘key support’ at 1.3170 remains intact (level was at 1.3120 yesterday), we expect GBP to move above 1.3365 eventually. The next significant resistance above 1.3365 is at 1.3470.
AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): AUD has moved into a consolidation phase.
AUD snapped its 3-day winning streak as it plummeted after touching 0.7200 and closed on a weak note (NY close of 0.7141, -0.65%). The price action reinforces our view that “AUD has moved into a consolidation phase” (see update on Tuesday, 26 Feb). As highlighted, there is no clear directional bias for AUD and from here, we continue to expect AUD to trade sideways, likely within a broad 0.7090/0.7230 range.
NZD/USD: Neutral (since 07 Dec 18, 0.6880): Odds for a sustained move above 0.6900 have increased.
For the third day in a row, NZD peeked above 0.6900 (yesterday’s high was 0.6902) before pulling-back sharply. While we indicated on Tuesday (26 Feb, spot at 0.6880) that the “odds for a sustained move above 0.6900 have increased”, we warned, “overbought short-term conditions suggest NZD could consolidate and trade sideways for a few days first”. We continue to hold the same view for now even though the weakness in NZD yesterday was more pronounced than expected. Overall, NZD has to start moving higher within these 1 to 2 days or a break of 0.6820 would indicate that NZD could continue to trade sideways within a broad range.
USD/JPY: Neutral (since 09 Oct 18, 113.10): USD has moved into a consolidation phase. No change in view from yesterday.
After hitting a 2-month high of 111.23 on Monday (25 Feb), the sudden and sharp drop in USD yesterday came as a surprise. The break of the 110.45 ‘key support’ indicates that the upward pressure that started about 2 weeks ago has eased (we held the view yesterday that USD is ready to challenge the 111.40 resistance). In other words, USD has likely moved into a consolidation phase and is expected to trade sideways in the coming days, likely within a 110.00/111.05 range. Looking forward, the price action near the bottom/top of the expected range should provide a better clue on the likely directional of the next move.