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Tech Targets: EUR/USD, AUD/USD, NZD/USD - UOB EUR/USD: Bullish: Take partial profit at 1.1400.
While the longer-term outlook for EUR is rather bullish, long should consider taking partial profit near 1.1400. The next significant resistance is further away at 1.1495. Stop-loss on longs should be adjusted higher to 1.1150.
AUD/USD: Neutral: Likely in a broad 0.6950/0.7240 range for now.
The recent rally in AUD was short-lived and the sharp from last week’s peak of 0.7242 is likely part of a broad consolidation phase. Expected range; 0.6950/0.7240.
NZD/USD: Neutral: Likely in a broad 0.6560/0.6800 range for now.
Similar to AUD/USD, the recent rally in NZD was short-lived as the trailing stop-loss was quickly breached. The outlook is neutral from here and this pair will likely trade in a broad 0.6560/0.6800 for now.
Tech Targets: EUR/USD, GBP/USD, AUD/USD, USD/JPY - UOB EUR/USD: Neutral: Corrective pull-back could extend lower to 1.1060.
There is no change to the neutral view. The current movement is viewed as a corrective pull-back which could extend lower to 1.1060.
GBP/USD: Change to Bearish: GBP/USD downtrend has resumed; immediate target at 1.4200.
We have maintained a neutral view for GBP/USD since late January and viewed the rebound from the low of 1.4080 as a corrective recovery. The abrupt and sharp drop below the key 1.4350 support yesterday suggests that GBP/USD has resumed its recent downtrend. The immediate target is for a move to 1.4200 with a reasonable high chance for a retest of the 1.4080 low.
Resistance is at 1.4385 but only a move above 1.4450 would indicate that our bearish view is wrong.
AUD/USD: Neutral: Daily closing above 0.7200 would shift outlook to bullish.
Despite the drop from the high of 0.7182 yesterday, the undertone for AUD/USD still appears positive.
As long as the major 0.7065/70 support continues to hold, another attempt to move clearly above 0.7200 cannot be ruled out just yet (only daily closing above 0.7200 would shift outlook to bullish).
USD/JPY: Neutral: In a broad 112.00/117.00 range for now.
We just shifted to a neutral stance yesterday and there is no change to the view.
The near-term outlook is rather clouded due to the recent spike in volatility and at this stage, we prefer to hold the view that this pair is to trade in a broad 112.00/117.00 range for now.
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Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY EUR/USD: Neutral: Corrective pull-back could extend lower to 1.1060.
There is not much to add as EUR/USD continues to drift lower and we continue to hold the view that the current pull-back has room to extend lower to 1.1060.
A move above 1.1180 would be the first sign that the weakness that started late last week has stabilized. Key resistance is nearer to 1.1250/55.
GBP/USD: Bearish: GBP/USD downtrend has resumed; immediate target at 1.4200.
We turned bearish GBP/USD yesterday and there is no change to the view.
The immediate target is at 1.4200 (with a reasonable high chance for a retest of the recent low at 1.4080) and stop-loss is at 1.4450.
AUD/USD: Neutral: Daily closing above 0.7200 would shift outlook to bullish.
As highlighted yesterday, as long as the major 0.7065/70 continues to hold, the outlook for AUD remains positive but only a daily closing above 0.7200 would shift the current neutral outlook to bullish
NZD/USD: Bearish: Downside appears to be limited to 0.6470.
NZD/USD rebounded strongly from the low of 0.6545 and it certainly does not bode well for our bearish view.
While we were of the view that the downside potential is limited to 0.6470, a daily closing above 0.6650 would indicate our bearish expectation is premature and wrong.
USD/JPY: In a broad 112.00/117.00 range for now.
We just shifted to a neutral stance yesterday and there is no change to the view.
The near-term outlook is rather clouded due to the recent spike in volatility and at this stage, we prefer to hold the view that this pair is to trade in a broad 112.00/117.00 range for now.
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Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY - UOB EUR/USD: Neutral: Weakness could extend to 1.0990 but odds for such a move are slim.
We were of the view that a short-term top is in place at 1.1375 and the corrective pull-back from the high could extend lower to 1.1060. We have seen a low of 1.1068 in overnight trading but with no signs of stabilization just yet, the current weakness could extend towards the next major support at 1.0990. That said, the down-move so far is clearly not impulsive and the odds for a move to 1.0990 is not high.
Overall, this pair is expected to remain under mild downward pressure in the coming days unless there is a move back above 1.1250/55.
GBP/USD: Bearish: Immediate target at 1.4200.
Despite the strong short-term rebound, there is no change to the bearish view.
We believe the current movement is a short-term consolidation that should lead to an eventual move lower to 1.4200. Stop-loss remains unchanged at 1.4450.
AUD/USD: Neutral: Daily closing above 0.7200 would shift outlook to bullish.
As highlighted in recent updates, the undertone for AUD/USD appears to be positive as long as 0.7065/70 continues to hold.
However, only a daily closing above 0.7200 would shift the outlook to bullish.
NZD/USD: Bearish: Downside appears to be limited to 0.6470.
The daily closing of 0.6642 was just below the key level of 0.6650.
As long as there is no daily closing above 0.6650, we continue to hold a bearish NZD/USD view but as pointed out previously, any down-move is likely limited to 0.6470.
USD/JPY: Neutral: In a broad 112.00/115.00 range for now.
We view the sharp drop yesterday as part of a broad consolidation phase and not the resumption of the recent bearish phase.
The outlook for USD/JPY remains mixed and we expect further choppy trading between 112.00 and 115.00.
USD: Sideways; EUR: Upward Pressure - Barclays USD: Resilient inflation The latest prints in wage increases and inflation have been relatively supportive for the USD. After having reached multi-year highs in mid-January, the USD has retraced somewhat amid expectations of further delay in the monetary policy normalization cycle. Although risks for the global economy are substantial, we consider that potential moves for the short end of the USD curve are somewhat asymmetric, supporting the USD in the medium term. We would not expect a meaningful move, but rather the USD to trade sideways with an appreciating bias in the weeks ahead.
In terms of data, core PCE for January will be published on Friday. We expect a 0.2% m/m increase, which would imply a 1.5% y/y reading. Additionally, personal spending should continue showing signs of strength in the US consumer. We expect a 0.4% m/m increase. The GDP report and durable goods will be published as well. We expect the former (Friday) to be revised lower from 0.7% to 0.3% q/q, while the latter (Thursday) will, we think, show an increase in the core component of 0.7% m/m.
Last but not least, Vice Chair Fischer will give a speech on Tuesday about developments in monetary policy, followed by an audience Q&A. We believe he will keep the door open for March, but the likelihood of a hike at the FOMC’s next meeting remains low.
EUR: Continued moderation in manufacturing momentum The positive outcome of the EU summit supports EMU stability; as such, it may provide some upward pressure to EURUSD at the beginning of this week.
In terms of data, euro area February “flash” manufacturing (Monday; Barclays: 51.9; consensus: 52.0) and services (Monday; Barclays: 53.5; consensus: 53.4) PMIs are likely to show further declines in manufacturing momentum but stable services. The German February IFO (Tuesday) business climate index is likely to decline to 106.0 (consensus: 106.9; last: 107.3), reflecting the recent weakness in German industrial production. We and the consensus expect euro area final January headline and core HICP inflation (Thursday) to be confirmed at +0.4% y/y and +1.0% y/y, respectively.
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USD: Trading This Week's Data - Credit Agricole Better US data of late to the benefit of rate expectations has kept USD supported. OIS futures pricing improved markedly in the past week on the back of positive data releases and upgrades to Q1 growth expectations.
We have another slew of data releases in the coming week but currency upside remains capped amid unstable risk sentiment and dovish rhetoric from Fed officials ahead of the March FOMC.
The key US release is PCE inflation, which is expected to show weak month-onmonth changes. As the Fed expects inflation to run low in the near-term, the impact is likely to be limited.
Markets should also shrug off a downward revision to Q4 GDP as a solid rebound in Q1 is projected across current analyst estimates.
Looking ahead, a further improvement in domestic demand conditions should be supportive but the currency remains prone to risk-off, China- and oilrelated market moves.
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Selling GBP/USD, Or Selling EUR/USD Now? - Morgan Stanley Morgan Stanley remains bearish on GBP and now sees 'Brexit discount' fully in play.
"Rising risk sentiment is not going to help GBP for now, as markets increase their probabilities for a Brexit," MS argues.
Monitoring the GBP Brexit discount.
"Between now and the June 23rd EU EU referendum referendum, we think GBP is going to trade at a discount to where interest rate or equity markets would suggest. Boris Johnson Boris Johnson, one of the UK's most popular politicians, campaigning to leave the EU will provide a boost for that side, keeping GBP weak. Going beyond a day, the polls will become increasingly important for GBP. Note that telephone polls have 'Remain in the EU' taking the lead, while internet polls suggest the opposite with the 'Leave the EU' in the lead," MS adds.
"We expect GBP to trade lower going into the referendum in June, our bear case for GBPUSD is 1.30 for year-end," MS projects.
"We think the FX trade with the better risk/reward, however, is to be short EURUSD as a Brexit may make markets question the whole European project," MS advises.
In its strategic portfolio, MS maintains a short EUR/USD position from 1.1360, with a revised profit-stop at 1.1210, and a target at 1.07.
Trading the US New Home Sales
Indicator Background
US New Home Sales provides analysts and investors with a snapshot of the strength of the US housing market, one of the most important sectors of the economy. As a new home is likely to be the largest purchase that a consumer will make, this indicator also can provide insight into current levels of consumer spending, a key driver of economic activity.
The indicator jumped to 544 thousand in December, well above the estimate of 501 thousand. This was the indicator’s highest level in four months. The markets are expecting a softer reading in January, with an estimate of 522 thousand.
Sentiments and levels
The February yen rally continues, as nervous investors continued to flock to the safe-haven yen in response to ongoing global financial turbulence. At the same time, US fundamentals are still much better than those of Japan, and monetary divergence favors the US dollar. A Fed rate hike is certainly possible sometime in 2016, while the BoJ is under pressure to adopt further easing measures. So, the overall sentiment is neutral on USD/JPY towards this release.
Technical levels, from top to bottom: 114.65, 113.71, 112.48, 110.68 and 108.58.
5 Scenarios
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EUR/USD, EUR/JPY: Trading Brexit - SocGen Brexit, however, isn’t just bad for the UK. It would have negative growth implications for the rest of Europe, and more importantly could cause wider political uncertainty. So far, the response to any market signs of loss of confidence in the Euro Area has come from the ECB and that isn’t likely to change. That in turn, is negative for the Euro, which this morning is hovering around psychological support at EUR/USD 1.10 and above the bottom of the uptrend of the last few months at 1.0950 or so.
I suspect that the break of 1.10 will see an acceleration downwards for EUR/USD, while a chart of EUR/JPY looks even more negative in the short term.
Chart 1 shows EUR/USD and the Bund/Treasury spread, which is a correlation that still works fine. This chart does not point to a dramatic move – unless we get either higher Treasury yields or lower Bunds. But it does show the recent peak in EUR/USD coming on February 11, when the Bund/Treasury spread was at its tightest and Treasury yields hit their most recent low.
Chart 2 shows EUR/JPY and the 10yeare yield spread in the Abenomics era. Yield spreads aren’t helping EUR/JPY but what stands out is that psychologically, this chart suggests the natural destination of the current move is for EUR/JPY to test 120 before it runs out of steam.
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Opportunities To Sell EUR On The Crosses - BNPP German IFO survey data for February was significantly weaker than expected, with the business confidence indicator falling to 105.7 and the expectations index to 98.8, notes BNP Paribas.
"This is consistent with the downward surprise to yesterday’s eurozone PMI data, where the composite measure fell to a 1-year low. While our base case is that Q1 eurozone growth remains at the 0.3% q/q pace seen in Q4 2015, recent survey indicators point to an increasing risk of a lower number.
This supports our economists’ expectations for bold ECB action on the 10th of March. ECB’s Nouy and Costa are scheduled to speak but we think eurozone monetary policymakers will continue to avoid an excessive build-up of easing expectations similar to the December episode which lead to market disappointment with actual ECB policy action," BNPP argues.
"We continue to see opportunities to sell EUR on the crosses, noting that in light of extreme short GBP positioning (-41 on a +-50 scale according to BNP Paribas Positioning Analysis), EURGBP’s risks are skewed to the downside. Furthermore, we remain short EURSEK with a 9.15 target," BNPP advises.
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