The US Dollar retreated after a spell of rises. What’s next? Here are the levels to watch.
Here is their view, courtesy of eFXdata:
EUR/USD: Neutral (since 21 Aug 18, 1.1485): Underlying tone remains soft, EUR could weaken further to 1.1450.
While we anticipated EUR to weaken since last Friday (28 Sep, spot at 1.1640), the pace and extent of the subsequent decline exceeded our expectation. We previously expected the weakness to be limited to a ‘test’ of the strong 1.1530 support but EUR easily cracked this level and dropped to a low of 1.1504 during London hours yesterday (02 Oct). Despite the subsequent quick recovery from the low, the underlying tone remains soft and from here, we see a chance for EUR to weaken further towards the next support at 1.1450. That said, this level is unlikely to come into the picture so soon. On the upside, the ‘key resistance’ has moved lower to 1.1630 from 1.1660 previously.
GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): GBP is still under pressure, could test the next support at 1.2900.
We highlighted earlier yesterday (02 Oct, spot at 1.3040) that “while downward momentum has not improved all that much, the near-term bias is on the downside even though any GBP weakness may struggle to break 1.2940”. That said, we do not expect 1.2940 to be tested within 24 hours as GBP hit a low of 1.2941 during NY hours before rebounding quickly. Despite the recovery, the current weakness has yet to show sign of stabilization and we expect GBP to remain under pressure in the coming days. From here, a clear break of 1.2940 would suggest GBP is ready to tackle the next support at 1.2900. Depending on price action in the next few days, a probe of the next support at 1.2860 would not exactly be surprising. On the upside, only a break of the ‘key resistance’ at 1.3080 (previously at 1.3170) would indicate that GBP has found a short-term bottom.
AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): Still a slim chance AUD may test the 0.7140 support. No change in view.
In our update last Friday (28 Sep, spot at 0.7205), we held the view that AUD is “expected to stay under pressure in the coming days” and “0.7140 is a solid support and is unlikely to yield so easily”. The price action since then has been lackluster at best and the recent mild downward pressure has eased somewhat. That said, only a break of 0.7260 would indicate that a short-term low is in place. Until then, 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.
NZD/USD: Neutral (since 20 Aug 18, 0.6625): NZD has moved back into a consolidation phase. No change in view.
NZD traded in a relatively manner since our last update on Friday (28 Sep, spot at 0.6615) and there is no change to our view. The outlook for NZD remains neutral and the current movement is viewed as part of a 0.6560/0.6660 consolidation range.
USD/JPY: Bullish (since 02 Oct 18, 113.95): Immediate ‘target’ is at 114.70.
USD snapped its recent winning streak and closed lower yesterday (NY close of 113.66, -0.21%). The price action is not surprising as we highlighted yesterday (02 Oct, spot at 113.95) that “short-term indicators are at severely overbought levels and this could lead to a couple of days of consolidation first”. In other words, there is no change to our bullish USD view and we continue to anticipate a move to 114.70. Only a break of 113.15 would indicate that a short-term top is in place. The ‘stop-loss’ level at 113.15 is relatively close as USD could not ‘afford’ to retrace too much amidst the current overbought condition or the risk deep pull-back would increase quickly. Note that we have held a ‘positive’ outlook in USD since 3 weeks ago (12 Sep, spot at 111.60) and upgraded the outlook to bullish yesterday (02 Oct).
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