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Thomson Reuters
Oct 05 - 01:24 AM
First appeared on eFXplus on Oct 04 - 11:37 PM

EUR/USD: Neutral (since 21 Aug 18, 1.1485): Break of 1.1450 would shift focus to 1.1390.

EUR edged below Wednesday’s 1.1463 low to touch 1.1462 before staging a rapid and robust recovery. We indicated yesterday, “1.1450 appears to be within reach sometime in the next 24 to 36 hours” and after the sharp bounce yesterday, the prospect for a move to 1.1450 have diminished. That said, the outlook for the next several days is still ‘negative’ and only a break of the ‘key resistance’ at 1.1580 (no change in level) would indicate that a short-term bottom is in place. Until then, there is still chance EUR could break 1.1450 in the coming days and this would shift the focus to the next support at 1.1390. However, as highlighted yesterday, we have reservations about the sustainability of the current EUR weakness and we doubt EUR is ready to move into a bearish phase.

GBP/USD: 1.3020 Neutral (since 21 Aug 18, spot at 1.2795): Diminished odds for further GBP weakness.

The 1.2900 level indicated in recent updates remain out of reach as GBP staged a sudden and strong surge from a low of 1.2922. The sharp up-move hit an overnight high of 1.3041. The high was not far from the 1.3050 ‘key resistance’ and as indicated previously, a break of the ‘key resistance’ would suggest that GBP has found a short-term bottom. From here, the odds for further GBP weakness have clearly diminished unless GBP can move and stay below 1.2965 within these 1 to 2 days. Looking ahead, a break of 1.3050 would not change the current neutral outlook but suggests GBP would likely trade sideways at a higher range.

AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): AUD under pressure; but major 0.7030 support could be out of reach. No change in view.

While we have expected a lower AUD since last Friday (28 Sep, spot at 0.7205), our conviction level was not high and we indicated on Tuesday (02 Oct, spot at 0.7225), “there is still a slim chance that AUD may test the 0.7140 support but this has to happen within these 1 to 2 days”. That said, the outsized decline of -1.21% yesterday (NY close of 0.7101) was not exactly expected. From here, AUD is still clearly under pressure even though we have doubts about the sustainability of the current weakness. However, a break below the year’s low of 0.7085 would not be surprising but there is a strong support at 0.7030 and this level is unlikely to yield so easily. To put it another way, the prospect for a break below 0.7030 is not high for now. All in, AUD is expected to remain under pressure as long as the ‘key resistance’ at 0.7175 is intact (level previously at 0.7260).

NZD/USD: Neutral (since 20 Aug 18, 0.6625): Expect further NZD weakness to 0.6450. 

NZD registered a fresh year’s low of 0.6474 yesterday. The price action was not surprising as we highlighted yesterday, we expect further NZD weakness to 0.6450. However, despite making fresh low, the improvement in downward momentum is not as much as preferred and we have doubts about the sustainability of the current NZD weakness. That said, only a break of the ‘key resistance’ at 0.6550 (level previously at 0.6570) would indicate that a short-term bottom is in place. Until then, NZD is expected to remain under pressure but it is unlikely that NZD would ‘accelerate’ lower from here (the next support below 0.6450 is at 0.6420).

USD/JPY: Bullish (since 02 Oct 18, 113.95): Immediate ‘target’ is at 114.70.

The bullish 114.70 ‘target’ that was first highlighted on Tuesday (02 Oct, spot at 113.95) remains elusive as USD staged a surprisingly sharp drop after touching a high of 114.54 during Asian hours yesterday. The rapid decline touched a low of 113.62 during NY hours, holding just above the ‘stop-loss’ for our bullish view at 113.50. The price action has clearly dented the recent strong upward momentum but confirmation of a short-term top is only upon a break of 113.50. That said, USD could not afford to hold below 114.70 for too long as a prolonged consolidation at these overbought levels would greatly increase the odds for a short-term top. All in, the price action over next few days should give us a clue on whether the current USD strength could extend further. Note that USD moved into a ‘positive’ phase more than 3 weeks ago, see update on 12 Sep (spot at 111.60) and we upgraded the outlook to bullish on Tuesday (02 Oct).

UOB Research/Market Commentary


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