EUR/USD: Neutral (since 21 Aug 18, 1.1485): Clear break above 1.1620 would shift focus to 1.1700.
We highlighted on Wednesday (10 Oct, spot at 1.1500) that EUR is expected to “trade sideways to slightly higher” within a 1.1450/1.1620 consolidation range. We added yesterday (11 Oct, spot at 1.1525), “EUR appears more likely to move towards the top of the expected 1.1450/1.1620 consolidation range first”. While the overall price action has been in line with our expectation, the pace of the advance has been faster than anticipated as EUR surged by +0.65% yesterday, the largest 1-day gain in 3 weeks. From here, the prospect for a break of 1.1620 has increased and a clear breach of this level would suggest there is scope for further EUR strength towards 1.1700. All in, EUR is expected to stay underpinned in the coming days and only a break of the ‘key support’ at 1.1500 would indicate that a short-term top is in place.
GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): GBP strength could extend further to 1.3295.
There is not much to add to yesterday’s update (11 Oct, spot at 1.3200) wherein the current GBP strength could extend further to 1.3295. GBP hit a high of 1.3250 during NY hours and with short-term indicators at overbought levels, GBP could consolidate and trade sideways for 1 to 2 days before staging the next up-leg to 1.3295. In view of the improved upward momentum, the risk of a clear break of 1.3295 has increased. Looking ahead, a breach of this level would shift the focus to the July’s peak of 1.3363. On the downside, only a break of the 1.3130 ‘key support’ (level previously at 1.3100) would indicate that the current ‘positive’ phase in GBP has run its course.
AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): AUD likely to trade within a broad range.
AUD recovered most of the steep loss registered on Wednesday (10 Oct) as it rebounded and closed sharply higher (NY close of +0.7124, +1.01%). While we highlighted yesterday (11 Oct, spot at 0.7065) that “we are not convinced that the current AUD weakness can be sustained”, the swift and rapid bounce came as a surprise. The whippy price action over the past few days has resulted in a mixed outlook. From here, we continue to hold a neutral stance and expect AUD to trade sideways within a broad 0.7040/0.7200 range. Looking ahead, the current price action seems to suggest that AUD is attempting to base out but this process could take up to a few weeks.
NZD/USD: Neutral (since 20 Aug 18, 0.6625): Still neutral; NZD is expected to trade sideways.
Despite the strong surge in NZD yesterday (NY close of 0.6527, +1.20%), we continue to view the current movement as part of a consolidation phase. In other words, NZD is expected to trade sideways within the 0.6430/0.6560 range indicated on Wednesday (10 Oct, spot at 0.6480). That said, after the sharp bounce yesterday, the prospect for a break above 0.6560 has increased but the next resistance at 0.6600 is likely strong enough to thwart any further advance in NZD (at least for another one week or so).
USD/JPY: Neutral (since 09 Oct 18, 113.10): Weakness is still viewed as a correction but scope to extend to 111.50. No change in view.
When we shifted from a bullish to neutral stance on Tuesday (09 Oct, spot at 113.10), we held the view that USD has entered a correction phase. We expected USD to trade with a ‘negative bias’ within a 112.50/114.00 range and highlighted, “looking further ahead, there is risk of a deeper pull-back to 112.00 but the odds for such a move are not high for now”. The large drop of -0.59% yesterday came as a surprise as USD dropped to a low of 112.23 before extending its decline after NY close (low of 112.06 at the time of writing). The rapid improvement in downward momentum suggests USD would remain under pressure in the coming days. At this stage, we still view the USD weakness as a ‘correction’ and not the start of a major bearish reversal. That said, there is scope for USD to weaken further to 111.50 in the coming days. On the upside, only a break above the ‘key resistance’ at 113.00 would indicate that the current weak phase in USD has stabilized.