Market Talk
– Flash crash was the hot topic for this morning. USD/JPY and AUD/USD led the market in a move lower, exacerbated by thin market conditions with Japan on holiday. There were JPY buying on safe haven and Aussie selling on China concerns.
– It started when Apple issued a profit warning after NY stock market closed due to sharp contraction in iphone sales in China. This raised concerns over a slowing Chinese economy one day after China’s PMI contraction. AUD/USD fell as a result. AUD/USD is a proxy for the Chinese Yuan.
– Concern over China and global economic growth send flows into safe haven JPY. With Japan on holiday and in a thin market condition, JPY buying resulted in a flash crash in USD/JPY.
– AUD/JPY was the biggest casualty with both AUD/USD and USD/JPY declining. Stop losses as well as algo trading exacerbate the decline in these 3 currency pairs. Stop losses in JPY-related crosses led GBP/JPY and EUR/JPY lower.
– Data to watch out for tonight – US ISM PMI at 11pm
Chart Focus EUR/USD
Key Points
1. Sell EUR/USD recommendation
2. Sell EUR/USD at 1.1370. Stop at 1.1420 and target at 1.1290
3. Reduction in risk appetite favours a move into US$ and interest rate differential adds to US$ favour.
4. Price could have reached the end of its correction with stochastic turning down and MACD bearish.
Fundamental Comments
1. Flash crash has reduced risk appetite and will move flow into safe haven US$
2. Interest rate differential favours US$
Technical Comments
1. Price has pull back to the Fibonacci 38% and this could be the end of the correction
2. Stochastic has reached extreme level and could be turning down with MACD bearish at the moment
Key Levels
| Support | 1.1345 | 1.1315 | 1.1285 |
| Resistance | 1.1370 | 1.1415 | 1.1470 |
Technical Overview
USD/JPY – Price is likely to consolidate within this morning half hour range. The range is from 108.55 to 106.45. The trend is bearish and we think price is likely to test the low at 106.45 again. We still prefer to sell on rally and a good location would be the 20EMA resistance at 107.50 on the hourly chart.
| Support | 106.70 | 106.45 | 105.85 |
| Resistance | 107.25 | 107.85 | 108.55 |
AUD/USD – The trend is still bearish and a good location to get into a short position is at the 20EMA resistance at 0.6950. Stochastic is near to its extreme level. MACD is bearish and the corrective move higher could be ending soon. We think price could be move lower to 0.6865 again in the next few days.
| Support | 0.6915 | 0.6865 | 0.6830 |
| Resistance | 0.6950 | 0.6985 | 0.7010 |
GBP/USD – Trend has turned bearish for now. We think the resistance is at 1.2580 and price could be heading lower to 1.2470 in the next couple of days. MACD is bearish while Stochastic has turned higher but has reached its extreme condition.
| Support | 1.2540 | 1.2510 | 1.2460 |
| Resistance | 1.2580 | 1.2630 | 1.2680 |
XAU/USD – Our view is similar to yesterday. We think price could rise higher to 1300 within the next couple of days. We do not think price will go beyond 1303 this round as oscillators are showing divergence warning as price advances. Watch the reaction at 1300.
| Support | 1289.10 | 1284.45 | 1278.50 |
| Resistance | 1296.85 | 1303.10 | 1309.10 |
USD/SGD – Our sell call was filled at 1.3660 this morning. Our USD/SGD view remains the same as yesterday. We believe that price is likely to be capped at 1.3670 and we could see a decline lower to 1.3570 over the next 48 hours. Both Stochastic and MACD oscillators are showing divergence warning.
| Support | 1.3630 | 1.3600 | 1.3570 |
| Resistance | 1.3677 | 1.3705 | 1.3735 |
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