EUR/USD within a consolidation phase

Headlines

  • GBP: Look to buy the dip as sharp move lower -    ING
  • EUR/USD within a consolidative phase – UOB
  • USD/JPY bulls struggling near 109.00 handle
  • Aussie, Kiwi Move Lower in Cautious Trade; Eyes on RBNZ

GBPUSD 1.3931 GBPEUR 1.1259 EURUSD 1.2373 USDCAD 1.2510 GBPINR 89.34 GBPAUD 1.7693 GBPAED 5.11

Poun

  • GBP has fallen quite substantially for 3 consecutive days in a row now against both the USD and EUR – a feat that since the referendum has usually coincided with periods of heightened ‘hard’ Brexit risks, according to Viraj Patel, Research Analyst at ING. “While there is certainly greater noise and uncertainty surrounding a transition deal – and tough talks between UK and EU officials – we believe Brexit dynamics have not been the driving force behind GBP’s latest corrective move lower. While a more hawkish tilt from the BoE tomorrow may not be (a) obvious and (b) result in material GBP upside until a Brexit transition deal looks more definitive, we see the dip in GBP/USD below 1.40 as a good buying opportunity amid a structurally weak $ backdrop. Still targeting 1.45 in 1Q18 as the UK economy regains some of its cyclical swagger.” In view of Karen Jones, Head of FICC Technical Analysis at Commerzbank, Cable’s interim top remains at 1.4345. “GBP/USD so far has sold off to the 1.3836 February 2016 low, which is holding. Intraday rallies will ideally struggle 1.4010/60 for an immediate downside bias to be maintained. Failure here should see a deeper sell off back to the 1.3658 September peak. Key medium term support is the 1.3372 2016-2018 uptrend. It recently failed at the 50% retracement of 1.4345 of the move down from the 2014 peak. This is reinforced by the 200 week moving average at 1.4373. We continue to view this as an interim top for the market and look for further weakness. Above 1.4400, the April 2015 low can be seen at 1.4568”.

US Dollar

  • The pair EUR/USD stays neutral in the near term and remains poised to extend the current rangebound theme, according to FX Strategists at UOB Group. 24-hour view: “We expected a lower EUR yesterday and anticipated a ‘test’ of the 1.2335 support. EUR dropped to a low of 1.2313 before rebounding strongly. Downward pressure has eased and EUR has likely made a short-term low at 1.2313. The recovery from the low has scope to extend higher but a clear break above yesterday’s top near 1.2435 seems unlikely (next resistance is at 1.2475). On the downside, support is at 1.2340 followed the low near 1.2315 (there is another strong support at 1.2300)”. Next 1-3 weeks: “We just shifted from a bullish to neutral stance yesterday and there is no change to the view. EUR is deemed to have move into a correction phase and despite the bounce from an overnight low of 1.2313, we continue to see room for a ‘test’ of the 1.2300 support (there is another rather strong level near 1.2250). Only a move back above 1.2475 would indicate that the current mild downward pressure has eased”.

Euro

  • The USD/JPY pair continued losing ground through the early European session and momentarily slipped below the 109.00 handle in the last hour. The pair failed to build on overnight solid rebound, led by a smart recovery in the US stock markets and met with some fresh supply well ahead of the key 110.00 psychological mark. Despite some signs of stability in global equity markets, which tends to dent the Japanese Yen's safe-haven appeal, the pair struggled to gain any traction and was being weighed down by a mildly softer US Dollar tone. Meanwhile, the downslide could be attributed to some cross-driven weakness steaming out of a sharp reversal in the GBP/JPY cross. Moreover, the price-action seems to suggest that investors might still be playing for a return of global risk aversion trade. As Omkar Godbole, Analyst and Editor at FXStreet notes, “investors still need to be cautious as equities could witness another round of sell-off if the 10-year treasury yield moves above 2.87 percent, in which case the demand for the Japanese Yen would spike. Also worth noting is the rising demand for JPY calls, i.e. the options market looks super bullish on Yen.” Hence, it would be prudent to wait for some fresh buying interest to emerge before confirming that the pair might have bottomed out in the near-term. There aren't any major market-moving economic releases due from the US, albeit a scheduled speech by the New York Fed President William Dudley might influence the price-action later during the early NA session. Market sentiment waned after global equity markets began to plunge on Friday following the release of strong U.S. employment data, which sparked concerns over rising inflation, sending bond yields sharply higher. The Dow Jones Industrials index was particularly hit on Monday, when it recorded its worst daily point drop in history. However, U.S. equities rebounded on Tuesday, leading to a downward turn in the greenback, which had benefited from Wall Street's sharp decline.

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