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Thomson Reuters
Mar 12 - 01:24 AM
First appeared on eFXplus on Mar 11 - 10:44 PM

EUR/USD: Neutral (since 21 Aug 18, 1.1485): EUR is vulnerable now, focus is at 1.1120.

The recovery in EUR after last Thursday’s (07 Mar) steep decline has been more ‘resilient’ than expected as it closed higher for the second straight day yesterday (1.1247, +0.08%). For now, we view the price action as part of a short-term consolidation phase and we continue to hold the view that EUR is vulnerable and could weaken further to 1.1120. However, a break of the 1.1290 ‘key resistance’ (no change in level) would indicate that current weak phase in EUR has stabilized.

GBP/USD:  Neutral (since 21 Aug 18, spot at 1.2795): Near-term risk is on the upside but GBP has to clear the major 1.3350 level.

After opening on a weak note early yesterday morning and dropping to a low of 1.2945, GBP staged an abrupt and outsized rally that hit an overnight high of 1.3170 (+1.01%). Brexit optimism propelled it further as it hit 1.3290 after NY close before easing off. Our narrative for GBP to stay “under pressure but expect strong support at 1.2870” was proven wrong quickly. Despite the rapid and strong advance, it is unclear at this stage whether GBP could extend its up-move in the coming days. That said, the near term risk is on the upside but only a clear break of last week’s peak near 1.3350 would suggest that GBP is ready to tackle the next resistance at 1.3470. Overall, GBP is expected to stay underpinned in the coming days as long as the ‘key support’ at 1.3070 is intact.

AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): AUD is ready to tackle the 0.6970 support.

Despite overall negative indications, AUD has not been able to make much headway on the downside as it closed higher for the second straight day yesterday. While we continue to hold the view that AUD is “ready to tackle the 0.6970 support”, downward momentum has waned and a break of the 0.7090 ‘key resistance’ (no change in level) would indicate that last Friday’s 0.7003 low is the extent of the current weak phase in AUD. Meanwhile, in order to revive its flagging downward momentum, AUD has to move and stay below 0.7030 within these few days or a break of 0.7090 would not be surprising.

NZD/USD: Neutral (since 07 Dec 18, 0.6880): NZD has moved into a consolidation phase.

NZD touched a high of 0.6836 yesterday, just a few pips below the 0.6840 ‘key resistance’. The strong advance is enough to indicate that the recent mild downward pressure has eased. From here, NZD is deemed to have moved into a consolidation phase and is expected to trade sideways within a broad range, likely between 0.6750 and 0.6885.

USD/JPY: Neutral (since 09 Oct 18, 113.10): USD is under mild downward pressure, could grind lower and test 110.40. No change in view.

We highlighted on Friday (08 Mar, spot at 111.60) that “time is running out for those who are anticipating a higher USD” and added, “a break of the 111.30 ‘key support’ would not be surprising”. USD subsequently cracked 111.30 and dropped to 110.77. The price action suggests that last week’s 112.12 high is a short-term top (note that we had held the view that USD would find it difficult to break the solid 112.00/20 resistance zone). From here, the bias is tilted to the downside but downward momentum is not strong and any weakness in USD is expected to be slow and grinding and could be limited to a test of 110.40. On the upside, a break of 111.80 would indicate that the current mild downward pressure has eased.

UOB Research/Market Commentary


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