Current short term Forecast - page 15
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Tech Targets: EUR/USD, GBP/USD, USD/JPY, AUD/USD, NZD/USD
EUR/USD: Neutral: In a range, likely between 1.0420 and 1.0620.
There is not much add; as noted yesterday, the near-term bias is tilted to the upside but 1.0620 is expected to offer stiff resistance in the coming days followed closely by the major resistance zone near 1.0650/70. Overall, EUR is expected to stay underpinned in the next couple of days with solid support at 1.0480.
GBP/USD: Shift from neutral to bearish: Expect strong support at 1.2085/90.
The rapid acceleration lower yesterday was unexpected as GBP easily took out several strong supports. While the neutral outlook has shifted to bearish, strong support can be expected near 1.2085/90 (this level was tested twice after the flash crash in October last year but held). The next key level is closer to 1.2000. In order to maintain the current momentum, any short-term rebound should not move back above 1.2290 even though 1.2250 is already a strong shortterm resistance. Overall, the reward to risk ratio to sell at current level (and the potential downside) is not as attractive as GBP/SGD
AUD/USD: Shift from neutral to bullish: Immediate target of 0.7430 possibly 0.7525.
As highlighted in the update yesterday, a clear break above 0.7350/55 would indicate that AUD has entered a bullish phase. The immediate target is at 0.7430, possibly extending to 0.7525. In order to maintain the current momentum, any pull-back should not move back below 0.7250 even though 0.7285 is already a strong shortterm support.
NZD/USD: Neutral: In a 0.6920/0.7055 range.
While upward momentum has improved, it is too early to expect a sustained up-move as 0.7055 is a very strong resistance and this level is unlikely to yield so easily. Overall, we prefer to hold a neutral stance for now even though the short-term bias is tilted to the upside (as long as 0.6950 is intact).
USD/JPY: Neutral: Back in a 115.50/118.60 range.
USD touched a high of 117.52 yesterday but the up-move was short-lived. The rapid drop has shifted the short-term risk to the downside but at this stage, it is too early to expect a sustained down-move. That said, a move below last week’s 105.00/05 would not be surprising and such a development would indicate a deeper probe towards the major 114.00 support has started.
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EUR/USD: Neutral: In a range, likely between 1.0420 and 1.0620.
EUR edged above the strong 1.0620 resistance once again but eased off quickly after touching a high of 1.0626 yesterday. The price action is line with our expectation wherein we view the current movement as part of a 1.0420/1.0620 consolidation range. That said, the shorterterm undertone is still positive and further attempts to move higher would not be surprising but 1.0620 is expected to continue to offer solid resistance (followed closely by another major resistance zone near 1.0650/70). On the downside, solid support is at 1.0505 (stronger level near 1.0470).
GBP/USD: Bearish: Expect strong support at 1.2085/90.
We turned bearish GBP yesterday but highlighted the less than favourable reward to risk ratio as the October’s low of 1.2085/90 is expected to offer solid support. GBP dipped initially but rebounded quickly after hitting a low of 1.2107. From here, as long as 1.2290 is intact, another attempt to move towards 1.2085/90 still seems likely. On a shorter-term note, 1.2250 is already a strong resistance.
AUD/USD: Bullish: Immediate target of 0.7430 possibly 0.7525.
We turned bullish AUD yesterday and there is no change to the view. However, the lack of a significant follow-through after the break of the trend-line resistance at 0.7350/55 is a concern. That said, only a move back below 0.7285 (adjusted from 0.7250) would indicate that our bullish view is wrong. Immediate target remains at 0.7430 and a clear break above this level would shift the focus towards last month’s high at 0.7525.*
NZD/USD: Neutral: In a 0.6920/0.7055 range. [No change in view].
While upward momentum has improved, it is too early to expect a sustained up-move as 0.7055 is a very strong resistance and this level is unlikely to yield so easily. Overall, we prefer to hold a neutral stance for now even though the short-term bias is tilted to the upside (as long as 0.6950 is intact).
USD/JPY: Neutral: Back in a 115.50/118.60 range.
USD touched a low of 115.18 yesterday but the down-move was short-lived. As noted yesterday, while the short-term risk is tilted to the downside, it is too early to expect a sustained down-move. Solid support can be expected at 115.00/05 and only a clear break below this level would indicate that a deeper probe towards 114.00 has started. On the upside, USD has to reclaim 117.50 to indicate that the short-term downward bias has eased.
EUR/USD: Neutral: In a range, likely between 1.0420 and 1.0620.
EUR registered a range of 1.0452/1.0622 yesterday, which almost covers the whole of our expected 1 to 3 weeks consolidation range of 1.0420/1.0620 (first indicated last Thursday). At this stage, there is no pre-indication that EUR is ready stage a ‘break-out’. That said, the undertone is mildly positive and a break above 1.0620/25 could lead to a move higher to test the major resistance zone near 1.0650/70.
GBP/USD: Bearish: To take partial profit at 1.2005/10.
GBP broke below the strong 1.2085/90 support (low of 1.2038) but the down-move was quickly reversed. The sharp bounce from the low has dented the recent downward momentum but as long as 1.2290 is intact, another leg lower towards 1.2000 cannot be ruled out just yet. That said, based on the current lackluster momentum, those who are short should look to book partial profit near 1.2005/10.
AUD/USD: Bullish: To take partial profit at 0.7500/05.
We highlighted the constructive price action in AUD on Monday and turned bullish when 0.7350/55 was taken out on Tuesday (spot at 0.7350). The immediate target indicated at 0.7430 was quickly exceeded as AUD registered the largest daily gain in 4 months yesterday (touching a high of 0.7471). While the outlook is still clearly bullish, the rally appears to be running ahead of itself and those who are long should look to take partial profit near 0.7500/05, just below the major resistance near 0.7525 (high in December).
NZD/USD: Neutral: Bullish only if clearly above 0.7100/05.
While the breach of the strong 0.7055 resistance bodes well for NZD, we prefer to see a clear break above the declining trend-line resistance at 0.7100/05 before turning bullish. This appears to be a likely scenario unless there is a move back below 0.6960 within these 1 to 2 days.
USD/JPY: Neutral: Pull-back to extend lower to 114.00.
As noted yesterday, a break below 115.00/05 would indicate that a deeper probe towards 114.00 has started. At this stage, we expect this level to offer solid support. That said, the downward pressure would continue to increase unless USD can reclaim 116.40 within the next few days.
EUR/USD: Neutral: Positive outlook as long as above 1.0500.
EUR exceeded the major resistance indicated at 1.0650/70 yesterday to hit a high of 1.0684 but the up-move was shortlived. Despite the pull-back from the high, the outlook for EUR is still positive but at this stage, it is unclear if it can continue to move higher in a sustained manner (even though technically the next significant resistance is at the 1.0872 high seen in early December). In view of the recent choppy price actions, it may be more prudent to approach this pair from a shorter-term perspective and be nimble and quick with entry and exit. We deem the short-term outlook as ‘positive’ and expect the 1.0500 support to hold, at least for the next few days.
GBP/USD: Shift from bearish to neutral: In a 1.2000/1.2300 range.
GBP spiked above 1.2290 to touch a high of 1.2317 before dropping sharply to current level. The recent bearish phase has ended and the outlook for this pair is viewed as neutral for now. Further volatile trading is expected in the coming days, likely within a broad 1.2000/1.2300 range.
AUD/USD: Bullish: Took partial profit at 0.7500/05, next level to focus on is at 0.7580.*
The partial profit-taking level highlighted in the update yesterday at 0.7500/05 was exceeded as AUD hit a high of 0.7519. This level was just below 0.7525 peak seen in December. While the rally appears to be running ahead of itself, a move above 0.7525 would shift focus towards 0.7580. Overall, only a move below the stop-loss at 0.7400 (adjusted from 0.7340) would indicate that the bullish phase has ended.
NZD/USD: Shift from neutral to bullish: Overbought but room to extend to 0.7180.*
As noted yesterday, a break above 0.7100/05 would shift the neutral outlook for NZD to bullish. Shorter-term indicators are overbought but there appears to be room for extension to 0.7180. At current level, the reward to risk does not appear to be that attractive and those looking to go long may like to wait for a dip closer to 0.7060/70.
USD/JPY: Neutral: Stabilization only if above 116.00.
USD plummeted below 114.00 to touch 113.73 but rebounded quickly and strongly. While the immediate downward pressure has eased somewhat, only a move above 116.00 would indicate that a short-term low is in place. In the meanwhile, another leg lower below 113.70/75 (next support at 113.10/15) is not ruled out but the odds for such a move does not appear to be high.
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EUR/USD: Neutral: Positive outlook as long as above 1.0500.
EUR registered an ‘inside day’ last Friday and there is no change to our view wherein we deem the short-term outlook as ‘positive’ as long as the key 1.0500 support is intact. However, it is unclear at this stage if EUR can move higher in a sustained manner (even though technically the next significant resistance is at the 1.0872 high seen in early December).
GBP/USD: Neutral: Room for extension lower to 1.1900.
We turned neutral last Friday after when the bearish stoploss was taken out at 1.2290. The gap lower this morning was clearly unexpected and the immediate risk has shifted to the downside again. However, it is uncertain whether the current GBP weakness can be sustained even though on a shorter-term basis, there is room for extension lower towards 1.1900. Last Friday’s low near 1.2120/25 is acting as a strong resistance but only a move above 1.2200 would indicate that the immediate downward pressure has eased.
AUD/USD*: Bullish: Took partial profit at 0.7500/05, next level to focus on is at 0.7580. [No change in view]
The partial profit-taking level highlighted in the update yesterday at 0.7500/05 was exceeded as AUD hit a high of 0.7519. This level was just below 0.7525 peak seen in December. While the rally appears to be running ahead of itself, a move above 0.7525 would shift focus towards 0.7580. Overall, only a move below the 0.7400 (adjusted from 0.7340) would indicate that the bullish phase has ended.
NZD/USD*: Bullish: Overbought but room to extend to 0.7180.
We turned bullish NZD last Friday and there is no change to the view. The suggested buying level of 0.7060/70 was not met as NZD rebounded from a low of 0.7072. Shorter-term momentum has waned somewhat and another dip towards 0.7060/70 would not be surprising. Stop-loss remains unchanged at 0.7020.
USD/JPY: Neutral: Stabilization only if above 116.00.
The immediate bias is still tilted to the downside but downward momentum is showing signs of waning. However, confirmation of a short-term low is only upon a move above 116.00. Until then, another leg lower below last week’s 113.70/75 low (next support at 113.10/15) cannot be ruled out just yet even though the odds for such a move are not high.
EUR/USD: Neutral: Positive outlook as long as above 1.0500.
There is no change to the current view wherein we expect EUR to remain supported in the short-term as long as 1.0500 is intact. However, it is unclear at this stage if EUR can move higher in a sustained manner even though technically, the next significant resistance above last week’s peak of 1.0684 is at the 1.0872 high seen in early December.
GBP/USD: Neutral: Room for extension lower to 1.1900. [No change in view]
We turned neutral last Friday after when the bearish stoploss was taken out at 1.2290. The gap lower this morning was clearly unexpected and the immediate risk has shifted to the downside again. However, it is uncertain whether the current GBP weakness can be sustained even though on a shorter-term basis, there is room for extension lower towards 1.1900. Last Friday’s low near 1.2120/25 is acting as a strong resistance but only a move above 1.2200 would indicate that the immediate downward pressure has eased
AUD/USD: Bullish: Took partial profit at 0.7500/05, next level to focus on is at 0.7580.
The consolidation over the past two days has resulted in a quick loss in momentum but as long as 0.7400 is intact, another attempt to move towards 0.7580 cannot be ruled out just yet. On a shorter-term basis, 0.7520/25 is already acting as a strong resistance.
NZD/USD: Bullish: Overbought but room to extend to 0.7180.
There is not much to add as NZD traded mostly sideways after breaking above the 0.7100 trend-line resistance last week. As long as 0.7020 is intact, the prospect for further upmove towards 0.7180 still appears to be quite high. Ideal buying level remains near 0.7060/70.
USD/JPY: Neutral: Stabilization only if above 116.00.
USD dipped briefly below last week’s low of 113.70/75 to touch 113.65 but the down-move was short-lived. While the undertone is still negative, the odds for further sustained down-move are not high. That said, USD has to reclaim 116.00 in the coming days to alleviate the immediate downward pressure.
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EUR/USD: Neutral: Room for further EUR strength towards 1.0800.
As noted in recent updates, we expect EUR to remain supported in the short-term as long as 1.0500 is intact. Upward momentum has improved further with the move above last week’s peak of 1.0684 and from here, the current EUR strength could extend further towards 1.0800. The ‘key’ short-term support is at 1.0590 (from 1.0500) with 1.0640 acting as a minor support.
GBP/USD: Neutral: Rebound to extend further towards 1.2480.
While we highlighted that we were uncertain whether the recent GBP weakness could be sustained, the spectacular rally yesterday was clearly unexpected. From here, the recovery appears incomplete and further up-move towards the declining trend-line resistance near 1.2480 seems likely. Overall, we expect GBP to remain underpinned in the coming days with solid support near 1.2240.
AUD/USD: Bullish: Took partial profit at 0.7500/05, next level to focus on is at 0.7580.
AUD touched a high of 0.7569 yesterday, just below the revised target of 0.7580. The prospect for a clear move above 0.7580 appears to be quite good and would shift the focus towards 0.7630 next. Overall, the bullish phase that started early last week is still intact as long as the stop-loss at 0.7445 is not taken out
NZD/USD: Bullish: Next key level to monitor is at 0.7250.
NZD sliced through the immediate target of 0.7180 to hit a high of 0.7219 yesterday. The bullish phase that started last Friday (13 Jan) is clearly intact even though the ideal buying level of 0.7060/70 was not met. From here, the next key level to monitor is at 0.7250. Based on the surging momentum, a break above this level would not be surprising (next resistance is at 0.7305)
*USD/JPY: Shift from neutral to bearish: Oversold but room for extension to 111.50.
We were of the view that the odds for further sustained weakness were limited but were proven wrong when USD plunged to an overnight low of 112.58. Despite being oversold, there is room for further extension to 111.50. That said, in terms of reward-to-risk ratio, the current level is clearly not attractive for those looking to sell as the stop-loss is much higher up at 114.50 (probably more prudent to wait for a rebound to 113.60).
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EUR/USD: Neutral: Back in a range, likely between 1.0500 and 1.0715.
Instead of extending higher, EUR dropped sharply yesterday from a high of 1.0715. The short-term undertone has shifted from positive to neutral and this pair has likely moved back into a consolidation phase. In other words, we expect range trading for now, likely between 1.0500 and 1.0715.
GBP/USD: Neutral: Rebound to extend further towards 1.2480.
The sharp pull-back after the spectacular rally on Tuesday was unexpected. As noted yesterday, as long as 1.2240 is intact, the current GBP strength appears to have scope to extend higher to test the major resistance at 1.2480.NA move below 1.2240 would indicate that the immediate upward pressure has eased and the start of sideway consolidation phase.
AUD/USD: Bullish: Diminished odds for further AUD strength.
The major 0.7580 resistance continues to cap as AUD dropped sharply from a high of 0.7566 yesterday. While the bullish phase that started last Tuesday (10 Jan) is still intact, faltering momentum suggests that the odds for further AUD strength have diminished. However, only a break below 0.7445 would indicate that the bullish phase has ended. Until then, despite the low odds, another attempt to move above 0.7580 cannot be ruled out just yet.
NZD/USD: Bullish: Increasing risk of a short-term top.
The sudden and sharp swing lower yesterday certainly does not bode well for the current bullish outlook for NZD. The rapid deceleration has increased the risk of a short-term top but confirmation is only upon a break below 0.7095. Such a move would not be surprising unless NZD can reclaim 0.7200 within these 1 to 2 days.
USD/JPY: Shift from bearish to neutral: Bearish call was wrong.
Current rebound could extend to 115.45/50. The bearish USD call yesterday was clearly ill-timed as USD staged a remarkable recovery and registered a ‘bullish engulfing” pattern on the candlestick chart. The strong rebound appears to have room to extend higher but the declining trend-line resistance near 115.45/50 is expected to offer solid resistance. In the next few days, only a move below 113.65 would indicate that the immediate upward pressure has eased.
EUR/USD: Neutral: Back in a range, likely between 1.0500 and 1.0715.
EUR dipped to low of 1.0587 yesterday but rebounded quickly. While the undertone has improved somewhat and a move above the 1.0715/20 high seen earlier this week would not be surprising, the current lackluster momentum suggests that a sustained up-move is unlikely (next resistance at 1.0765). In other words, we continue to expect range trading for now, likely between 1.0500 and 1.0715 even though the risk appears to be tilted to the upside.
GBP/USD: Neutral: Rebound to extend further towards 1.2480.
There is not much to add as we continue to hold on to the view that the current GBP strength has room to extend higher towards 1.2480. This level is a strong resistance and a clear break above would indicate that GBP could move much higher in the coming days/weeks. All in, GBP is expected to stay underpinned as long as 1.2250 is intact.
AUD/USD: Bullish: Focus is at 0.7630 now.
At the time of writing, AUD has moved briefly above the major resistance at 0.7580 and the focus has shifted to 0.7630 now. We still have some reservations on the current momentum and if long, stops should be trailed to 0.7490 (just below the 0.7493 low seen yesterday).
NZD/USD: Bullish: 0.7250 is back in sight.
NZD dipped to a low of 0.7116 yesterday, coming close to the trailing stop-loss for our bullish view at 0.7095. The subsequent sharp rebound is a welcomed surprise and from here, 0.7250 appears to be back in sight. In other words, the bullish phase that started last Friday (13 Jan) is still intact and a move above last month’s 0.7250 high would shift the focus towards 0.7300 next.
USD/JPY: Neutral: In a 113.50/116.00 range.
We shifted to a neutral stance yesterday and held the view that the rebound in USD has room to to extend towards 115.45/50. USD hit a high of 115.61 yesterday but eased off quickly. The failure to move higher in a sustained manner is not surprising and from here, we continue to hold a neutral stance and expect USD to trade in a broad 113.50/116.00 range (even though the immediate bias is tilted to the upside).
Week Ahead: The Divergence Trade Has Stalled; Long Live FX Carry Trade
USD-bulls remain in wait-and-see mode, anticipating more details on the upcoming US economic stimulus before adding to their longs. We remain bullish on USD and expect its appreciation to resume over time as we learn more about Trump’s fiscal and trade policies during the president’s first hundred days.
Even as the policy divergence trade has stalled of late, however, demand for FX carry trades is still very much on, making AUD and NZD the best performing G10 currencies since the start of the year.
Looking into next week, we expect business and consumer sentiment data out of the US, the Eurozone, Japan, Switzerland and Sweden, as well as leading indicators out of Australia and China, to confirm the recent trend of an improving global economic outlook. This much could be enough to keep global risk sentiment and demand for FX carry trades supported, provided Trump refrains from any disruptive comments for now.
AUD and NZD could also regain more ground ahead of the Q4 CPI data out of Australia and New Zealand. We suspect that CAD will lag behind other commodity currencies following the recent dovish BoC comments. We stick with our long USD/CAD trade.
While resilient risk sentiment and commodity prices should continue to support the G10 higher-yielding and commodity currencies for now, we worry that their outperformance could be put to the test in the coming weeks when more details about Trump’s trade policy become available. We see the two antipodean currencies as the most vulnerable vs USD over the medium term, given that we expect China to bear the brunt of any US protectionism early on in Trump’s presidency.
GBP has staged a rebound of late after PM May offered more clarity on her Brexit vision and committed to a Parliamentary vote on the final Brexit deal. The decision likely reduced the risks of a delay to Article 50 being triggered ahead of the Supreme Court ruling next week, which should in our view confirm the recent High Court decision to endorse a greater involvement of the UK parliament in the Brexit process. This also seems to keep hopes alive that a ‘very hard’ Brexit may ultimately be avoided. That said, we expect the outlook for GBP to remain challenging for now with renewed underperformance expected against both USD and EUR.
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