Karen Jones, Head of FICC Technical Analysis at Commerzbank, noted the relevance of the key support at 0.7477.
“AUD/USD held sideways and has started to erode the accelerated uptrend at .7610 – this adds weight to the idea of a correction lower taking hold near term”.
“As we highlighted last week, the recent high of .7722 had been accompanied by a divergence of the daily RSI”.
“Attention has reverted to support, namely .7477, last weeks low, and .7416 (16th March low). The October and November highs lie at .7384/81”.
According to the research team at UOB Group, the pair still faces increasing downside pressure.
“While USD is clearly on the defensive, the internal momentum is not as impulsive as we would like and it is unclear if the current weakness could extend significantly lower in the days ahead”.
“Bear in mind that the sharp drop to 110.65 last month was quickly reversed and this level is acting as a strong support followed by the major level of 110.00”.
“That said, the downside pressure will continue to increase unless USD can move back above 112.00 in the next 1 to 2 days (111.60 is already a strong resistance)”.
The common currency remains on the defensive on Tuesday, with EUR/USD trading in the area of daily lows near 1.1350.
EUR/USD now looks to US releases
The pair has started the week on a negative note, retreating for the second consecutive session after being rejected from fresh 2016 tops near 1.1440 last Friday.
A renewed buying interest around the dollar could be behind today’s downside, ahead of the US calendar, which includes ISM Non-manufacturing, Markit’s Services PMI, February’s Trade Balance figures and the API’s report.
EUR/USD levels to watch
The pair is now down 0.31% at 1.1355 and a break below 1.1291 (23.6% Fibo of 1.0820-1.1437) would target 1.1254 (20-day sma) en route to 1.1142 (low Mar.24). On the other hand, the initial hurdle aligns at 1.1437 (2016 high Apr.1) ahead of 1.1496 (monthly high Oct.15 2015) and then 1.1713 (high Aug.24 2015).
The GBP/USD pair met fresh supply on its recovery from UK PMI induced losses, dragging the rate lower in a bid to retest 1.42 handle.
GBP/USD attacks 1.4200
The GBP/USD pair drops -0.40% to fresh session lows of 1.4204, stalling the recovery near 1.4240 levels. The cable came under renewed selling pressure and dives deeper in the red as the US dollar regained lost footing against its major peers, with the USD index jumping 0.20% higher at 94.78 levels, ending a six-day losing streak.
Moreover, markets absorb mixed UK services PMI report, with the services sector activity coming in below estimates, but a tad stronger than the previous reading. The UK services sector picked up to 53.7 in March, following February's lowest reading since April 2013, although missed estimates of a 53.9 reading.
Looking ahead, the cable remains is expected to remain under pressure as the poor broader market sentiment will continue to weigh, while the upcoming US data may offer some respite to the bulls.
GBP/USD Levels to consider
The pair has an immediate resistance at 1.4250/57 (round number/ 5 &10-DMA), above which 1.4300 (psychological levels) would be tested. On the flip side, support is seen at 1.4171 (Apr1 Low) below that at 1.4100 (key support).
James Knightley, Research Analyst at ING, notes that the UK’s service sector purchasing managers’ index has risen a fraction more than expected to stand at 53.7 in March versus 52.7 in February (consensus was 53.5).
“With the manufacturing and construction PMIs remaining little changed (but at least staying in growth territory) the overall composite index has risen to 53.6 from 52.7. This is still well down on the average level of 2015 and suggests that the UK economy has lost momentum at the start of the year.
An obvious factor behind this is the upcoming referendum on the UK’s ongoing membership of the European Union. With opinion polls suggesting that the vote will be incredibly close, businesses are likely to act cautiously and not embark on any significant expansion plans until the economic outlook is clearer. This means that investment and labour hiring plans will be more limited, which is something that was also highlighted in the recent Deloitte CFO survey. As such, the economy looks set to post slower growth in 2Q16 than in 1Q16.
Should the UK vote to remain within the EU then we suggest that the slowdown will be temporary and the delayed hiring and investment plans will be re—instated, leading to a decent bounce in activity in 2H16. However, should the UK vote to leave then expansion plans are likely to be cancelled, business and consumer sentiment will take a hit and the Bank of England would likely have to step in with policy stimulus to try and shore-up confidence.”
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