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Thomson Reuters
May 15 - 01:24 AM
First appeared on eFXplus on May 15 - 12:00 AM


24-HOUR VIEW: EUR could continue to edge lower but may struggle to break below 1.1170. We highlighted yesterday the “intraday risk is tilted to the downside but expect strong support at 1.1205”. EUR subsequently dipped to 1.1199 during late NY hours before ending the day on a soft note at 1.1203. The underlying tone remains weak and EUR could continue to edge lower but it may struggle to break below 1.1170 (minor support is at 1.1185). Resistance is at 1.1225 followed by 1.1245.

1-3 WEEKS VIEW: EUR is expected to continue to trade sideways. EUR closed lower for the second straight day (NY close of 1.1203, -0.17%) and the recent build-up in upward momentum has fizzled out. The price action was not exactly surprising as we indicated yesterday, “EUR has to move above 1.1265 within these 1 to 2 days or the prospect for such a move would diminish quickly”. In other words, EUR has failed to break out of the recent sideway-trading phase. From here, EUR is expected to continue to trade sideways, likely within a 1.1130/1.1265 range. After failing to break above 1.1265, the immediate bias is tilted to the downside even though 1.1130 is a solid support and is unlikely to yield so easily.


24-HOUR VIEW: GBP could weaken further but a clear break of 1.2865 is unlikely. We expected GBP to move lower yesterday but were of the view, “the next support at 1.2900 could be just out of reach”. In line with expectation, GBP dipped to 1.2903 before settling at 1.2905. While further weakness would not be surprising, oversold condition suggests a clear break of 1.2865 (low in April) is unlikely (minor support is at 1.2885). On the upside, only a move above 1.2960 would indicate that the current downward pressure has eased (minor resistance is at 1.2935).

1-3 WEEKS VIEW: GBP could dip below 1.2865 but unclear if weakness could extend to 1.2820. We highlighted yesterday (14 May, spot at 1.2960) that a clear break of 1.2930 would indicate that GBP has moved into a negative phase. GBP took out 1.2930 without much difficulty as it dropped to an overnight low of 1.2903. From here, the level to focus on is at last month’s low near 1.2865. While a move below this level would not be surprising, it is unclear at this stage whether any weakness in GBP could extend to the next support at 1.2820 as downward momentum is not very strong. That said, GBP is expected to stay on the back foot and only a move above the 1.3010 ‘key resistance’ would indicate that the current mild downward pressure has eased.


24-HOUR VIEW: AUD could dip further but 0.6910 is likely to remain unchallenged. The anticipated weakness in AUD was less than expected and the strong support at 0.6910 was not tested (low of 0.6935). While downward momentum has waned, there is scope for AUD to dip below 0.6935 first before a recovery can be expected (the 0.6910 level is likely to remain unchallenged). Resistance is at 0.6955 followed by 0.6975.

1-3 WEEKS VIEW: Focus is at 0.6910. No change in view from yesterday, see reproduced update below. We have held the same view since last Monday (06 May, spot at 0.6980) wherein a “break of 0.6950 would shift focus to 0.6910”. After about a week, AUD finally cracked 0.6950, albeit not by much (low of 0.6941). The price action is not surprising as we indicated yesterday (13 May) that “the current short-term sideway trading phase is likely to be resolved by a ‘downside break’”. As per our narrative, the level to focus on now is at 0.6910. The level is followed by a rather critical level at 0.6885. A break of 0.6885 would greatly increase the risk of AUD accelerating lower in the weeks ahead. On the upside, the ‘key resistance’ has finally moved from its previous level of 0.7060 to 0.7010. Only a break of the 0.7010 ‘key resistance’ would indicate that the current AUD weakness has run its course (note the current negative started in late April).


24-HOUR VIEW: Current movement is viewed as part of a consolidation phase. We expected NZD to “edge lower to 0.6545” but instead it traded in a subdued manner between 0.6565 and 0.6591. The price action is viewed as part of a consolidation phase even though the immediate bias is for NZD to probe the bottom of the expected 0.6560/0.6590 range.

1-3 WEEKS VIEW: NZD is expected to test the rising weekly trend-line at 0.6500. There is not much to add as NZD traded in a quiet manner and ended the day little changed at 0.6573 (+0.06%). While downward momentum has waned further, only a break of the 0.6630 ‘key resistance’ (no change in level) would indicate that a short-term bottom is in place. Until then, we continue to hold view that NZD could “test the rising weekly trend-line at 0.6500” (same view since last Wednesday, 08 May). That said, NZD has to start moving lower soon as a prolonged consolidation around current level would lead to a rapid loss in momentum and diminished the prospect for further weakness.


24-HOUR VIEW: USD is expected to trade sideways, likely between 109.40 and 109.85. The rapid and robust recovery in USD yesterday was not expected. Downward pressure has clearly eased and the current movement is viewed as part of an on-going consolidation phase. In other words, USD is expected to trade sideways today, likely between 109.40 and 109.85.

1-3 WEEKS VIEW: Risk of a clear break of 109.00 has increased. No change in view, see reproduced update below. The negative phase in USD that started last Monday (06 May, spot at 110.65) is not only intact but has notched up a gear as USD easily cracked 109.30 and came close to 109.00 (low of 109.01 during NY hours). The rapid pace of decline suggests risk of a clear break of 109.00 has increased. However, shorter-term indicators are rather oversold and this could lead to a couple of days of consolidation first. For now, the prospect for further USD weakness is not that high but it would continue to increase as long as the ‘key resistance’ at 110.10 is intact (level was at 110.40 previously).

UOB Research/Market Commentary


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