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#1 06-01-2020 13:26:16

johnedward
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EUR/USD and GBP/USD: the euro will likely consolidate, while pound...

EUR/USD and GBP/USD: the euro will likely consolidate, while the pound is facing bearish risks (UOB)

     

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In a note published on Monday, UOB believes that the euro-dollar should evolve within a climate of consolidation for the time being.

"While we expected the euro to weaken at the end of last week, we maintain the belief that any weakness is within the 1.1145/1.1200 range. The euro then dropped to 1.1123 before rebounding quickly. Despite the relatively sharp decline, the downtrend momentum has not improved much and the low of 1.1122 is probably "safe" for the time being. That being said, it is too early to expect a recovery, and the euro is more likely to consolidate and trade sideways. The expected range for now is 1.1135/1.1200."

Looking ahead to the next few weeks, the bank says that "the movement of the euro is probably the 'beginning of a corrective pullback' but any weakness is considered to be within a wide range of 1.1110/1.1225 and a sustained decline below 1.1105 seems unlikely. The euro's drop to 1.1124 at the end of last week and the rapid recovery reinforces our view. The 1.1110 level is a relatively strong support level and a clear breakout from this level would suggest that last week's peak at 1.1240 could be a bigger peak than currently expected".

Regarding the GBP/USD, UOB notes that the pair may test lower levels in the coming weeks.

"We pointed out last week that the pound "may test 1.3100 before stabilising". We underestimated the downward pressure as the pound not only broke below 1.3100 but also broke below the next support level at 1.3070 (with a low of 1.3055). Although the decline still appears to be continuing, the current weakness is not yet showing signs of stabilisation. From here, the pound could fall below 1.3054 but the next support level at 1.3025 is not likely to come into play (there is another strong support level at 1.3000). Resistance is at 1.3120 followed by 1.3150."

Looking ahead, "While the rapid retreat from last week's 1.3285 peak is consistent with our view that the GBP is trading sideways between 1.3000 and 1.3400, the rapid pace of decline has increased the risk of a breakout from the lower end of the expected range. 1.3000 is a relatively strong support level and a breakout from this level would suggest that the mid-December low of 1.2900 could be in jeopardy. From there the pound must move and stay above 1.3190, otherwise the current slight downward pressure would increase rapidly".

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