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Thomson Reuters
Oct 11 - 01:24 AM
First appeared on eFXplus on Oct 10 - 11:37 PM

EUR/USD: Neutral (since 21 Aug 18, 1.1485): Still neutral but EUR is expected to trade sideways to slightly higher.

EUR briefly dipped to a low of 1.1477 during London hours yesterday before rebounding strongly. The price action reinforces our view wherein Tuesday’s (09 Oct) low of 1.1429 is deemed as a short-term bottom. As highlighted yesterday (10 Oct, spot at 1.1500), while the overall outlook remains as neutral, EUR is expected to trade sideways to slightly higher in the coming days. That said, after the bounce yesterday, EUR appears more likely to move towards the top of the expected 1.1450/1.1620 consolidation range first. In view of the lackluster momentum, the prospect for a clear break above 1.1620 is not high.

GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): GBP strength could extend further to 1.3295.

We have held the same view since Monday (08 Oct, spot at 1.3120) wherein we expect GBP to trade with an upside bias and probe the top of the anticipated 1.3030/1.3220 consolidation range. After a few days of relatively choppy price action, GBP rose in a ‘decisive’ manner and hit a high of 1.3216 before closing at a 3-week high (NY close of 1.3193, +0.35%). Despite the positive price action, it is premature to expect the start of a bullish phase. That said, we see scope for the current GBP strength to extend further and test last month’s 1.3295 peak. In other words, we are holding a ‘positive’ view in GBP now and only a break of the ‘key support’ at 1.3100 would indicate that the current GBP strength has run its course.

AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): Still neutral; AUD likely to trade at a lower range.

AUD touched a 1-week high of 0.7130 during Asian hours yesterday before staging a surprisingly sharp and rapid drop. We highlighted yesterday that the ‘negative’ phase has ended and while the subsequent decline moved below our expected 0.7050/0.7210 consolidation range (overnight low of 0.7045), we are not convinced that the current AUD weakness can be sustained. Only a clear break of 0.7000 would indicate that AUD is ready to move lower in a sustained manner. Meanwhile, we expect AUD to trade sideways, albeit likely at lower 0.7020/0.7140 range.

NZD/USD: Neutral (since 20 Aug 18, 0.6625): Still neutral; NZD is expected to trade sideways. No change in view.

We have expected NZD to weaken since last Thursday (04 Oct, spot at 0.6505) and while the ‘key resistance’ for our view at 0.6510 is still intact, the price action over the past couple of days suggests that NZD has likely found a short-term bottom at 0.6424 on Monday (our expectation for NZD to test 0.6400 did not materialize). There is no change to the overall neutral outlook but NZD is expected to trade sideways from here, likely within a 0.6430/0.6560 range.

USD/JPY: Neutral (since 09 Oct 18, 113.10): Weakness is still viewed as a correction but scope to extend to 111.50.

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.

UOB Research/Market Commentary


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