A new week is upon us with the dollar trying to make further headway, but not going anywhere fast for now. What levels should be watched?
Here is their view, courtesy of eFXnews:
EUR/USD: Bullish (since 15 Jan 18, 1.2195): EUR has to move above 1.2536 soon or risk of a top would increase quickly.
While EUR lost ground against USD last Friday as other major currency pairs, the decline was relatively mild. That said, upward momentum is beginning to wane and in order to move into ‘fresh’ bullish territory, EUR has to stage a push higher and stay above last month’s 1.2536 peak within these few days or the risk of a short-term top would increase quickly. To put it another way, the longer EUR stays below 1.2536, the higher the risk of a short-term top. On the downside, a break 1.2380 would serve as a pre-indication that a top is imminent.
GBP/USD: Neutral (since 30 Jan 18, 1.4075): Pressure has shifted to the downside but too soon to expect a sustained down-move.
While we highlighted last Friday (02 Feb, spot at 1.4265) that it is “too early to expect a resumption bullish phase”, the subsequent rapid decline that easily took out a couple of strong support levels with ease came as a surprise. The immediate pressure has shifted quickly to the downside but it is too soon to expect a sustained down-move. However, the weak undertone could lead to a test of last week’s 1.3980 low but a clear break below this level seems unlikely at this stage. Overall, GBP is expected to stay under pressure over the next several days unless it can reclaim 1.4230. On a shorter-term note, 1.4180 is already a strong level.
AUD/USD: Neutral (since 02 Feb 18, 0.8040): Bearish if NY closing is below 0.7860.
While the shift to a neutral stance last Friday (02 Feb, spot at 0.8040) was timely, the subsequent outsized decline of -1.51% was clearly not expected (the -1.51% decline is the biggest 1-day drop since May last year). Despite the vastly improved downward momentum, it is too early to expect the start of a bearish phase. Only a NY closing below 0.7860 would indicate that a move towards 0.7805/10 has started. The odds for such a move are not high for now but would continue to improve unless AUD can reclaim 0.8020 in the coming days. On a shorter-term note, 0.7980 is already quite a strong level.
NZD/USD: Shift from bullish to NEUTRAL: Scope for extension lower to 0.7220.
The key 0.7435/40 level that was highlighted several times in recent updates continue to remain unchallenged as NZD plunged from a high of 0.7405 last Friday. The sharp and rapid drop took out the ‘stop-loss’ level at 0.7310 and the bullish phase that started in mid-Dec (14 Dec, spot at 0.7015) is deemed to have ended. The outlook for NZD is viewed as neutral for now even though the decline has scope to extend lower 0.7220. A clear break below this level would indicate that NZD has moved into a bearish phase. All in, NZD is expected to stay under pressure in the coming days unless it can reclaim 0.7370.
USD/JPY: Shift from bearish to NEUTRAL: Recovery has scope to extend higher.
The sharp swing higher in USD last Friday that took out the 110.30 ‘stop-loss’ for our bearish view came as a surprise. The bearish phase that started on 25 Jan (spot at 109.30) has ended. Despite the strong up-move, we view the USD strength as part of a corrective rebound and not the start of a bullish phase. That said, the recovery has scope to extend higher to 110.80. Overall, after the strong rally last Friday, USD is expected to stay underpinned in the next several days with 109.20 as a key short-term support.
For lots more FX trades from major banks, sign up to eFXplus
By signing up to eFXplus via the link above, you are directly supporting Forex Crunch.