EUR/USD: Neutral (since 21 Aug 18, 1.1485): EUR could drift lower but any weakness is viewed as part of a consolidation range.
The recent upward pressure has eased as EUR staged a surprisingly sharp decline last Friday and took out the 1.1590 ‘key support’. We indicated on Friday (31 Aug, spot at 1.1670) that a break of 1.1590 would suggest that a short-term top is in place. In other words, we do not expect EUR to move above last week’s 1.1733 peak for the next one week or so. The weakened undertone suggests EUR could drift lower from here but at this stage, we view any weakness as part of 1.1520/1.1675 consolidation range and not the start of a sustained decline.
GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): GBP to trade sideways to slightly lower.
The sharp and rapid drop in GBP last Friday (and earlier this morning during Sydney hours) came as a surprise. Our previous expectation for a stronger rebound to 1.3150 was wrong. From here, last week’s 1.3043 peak is viewed as a short-term top and we expect GBP to trade sideways to slightly lower for the next 1 to 2 weeks, likely within a 1.2800/1.3010 range.
AUD/USD: Shift from neutral to bearish: Bearish but mindful of the long-term 0.7145/60 support zone.
While we indicated last Friday (31 Aug, spot at 0.7265) the “the year-to-date low of 0.7203 appears to vulnerable”, the manner of which AUD sliced through this strong support was not exactly expected as it plummeted to a low of 0.7177. The break of key support coupled with the rapidly improving downward momentum suggests that the 2-weak neutral phase has ended. While we hold a bearish AUD view now, we are mindful of the long-term support zone of 0.7145/60, being the low in 2017 as well as the 10-year rising trend-line support (visible on the monthly chart). Such strong levels may not yield so easily, at least not on the first attempt. In order to maintain the current momentum, AUD has to stay below 0.7260 as a break of this ‘stop-loss’ would indicate that AUD has made a short-term bottom. Looking further out, a break of 0.7145 would shift the focus to 0.7100.
NZD/USD: Neutral (since 20 Aug 18, 0.6625): NZD is expected to grind lower to 0.6545.
The rapid pace and extent of pull-back from last week’s 0.6728 peak was not exactly expected. However, it is too early to anticipate a sustained decline even though the weakened underlying tone suggests NZD could grind lower towards the year-to-date low of 0.6545. The odds for a break of this level are not high at this stage but would continue to improve unless NZD can move back above the 0.6675 ‘key resistance’.
USD/JPY: Neutral (since 23 Jul 18, 111.20): USD has moved back into a consolidation phase
There is not much to add to last Friday’s (31 Aug, spot at 111.05) update. We continue to view the current movement as part of a neutral consolidation phase and expect USD to trade sideways for now, likely between 110.35 and 111.80.