FX Commentary 7 January 2019

Market Talk

– US Non-Farm Payroll came out much higher at 312K against 176K (F). This dispelled fear of a US economic slowdown resulting in a stronger US$ on expectation of more US rate hikes to come.

– Powell assured the market in the wake of a strong US NFP that Fed will be patient with rate hikes, resulting in a weaker US$ but a big jump in the equity market. A strong economy tends to attract interest rate hikes to cool the economy which is not good for the stock market.

– Trade talks between US and China begin today. Optimism of a trade deal led to an increase in risk appetite. Aussie was the biggest beneficiary of the “risk on” mode.

– Brexit rhetoric resumes ahead of a parliamentary vote next week. DUP called on May to dump “poison” backstop while there is talk of another postponement of Brexit vote in parliament. Brexit concerns have less impact on Sterling as the US$ weakness was in focus as a result of slower US rate hike.

– US ISM Manufacturing to watch out for tonight at 11pm in view of the strong NFP data. A strong number would confirm there is no slowdown in US economic activity.

Chart Focus USD/CAD

Key Points

1. Buy USD/CAD recommendation

2. Buy USD/CAD at 1.3320. Stop at 1.3270 and target at 1.3420

3. A price correction may be due after a 300 pips drop over 3 days and crude oil recent small gains are likely to weigh on CAD

4. Oversold technical condition with MACD starting to turn up and price near to Fibonacci 62% support could cause a price reversal

Fundamental Comments

1. Price has declined from 1.3660 to 1.3360 in the past 3 days and a correction is due.

2. Crude oil price’s gain has been slow after an initial rally which does not help CAD’s strength

Technical Comments

1. Price decline is approaching the 62% Fibonacci retracement point

2. Stochastic is into oversold extreme zone while MACD has been turning up.

Key Levels

Support 1.3350 1.3320 1.3280
Resistance 1.3395 1.3440 1.3485

Technical Overview

USD/JPY – Price reached a low of 108.015 earlier but we do not think that this will be the low for today. We think price is likely to move up 108.35 in a corrective move and after that a fall to 107.85 is likely later in the day to complete the ABC corrective move. Stochastic is rising but MACD is still bearish.

Support 107.95 107.50 107.10
Resistance 108.35 108.60 108.90

EUR/USD – Our short Euro position was stopped out on Friday with a loss of 50 pips due to Powell’s comments. The chart still looks bearish at the moment. If price failed to move above 1.1440, there is a high chance of a decline back to 1.1360 or 1.1330. Stochastic is into overbought extreme and MACD has remained bearish despite a price rally.

Support 1.1400 1.1360 1.1335
Resistance 1.1440 1.1495 1.1550

GBP/USD – Our short Sterling position was stopped out on Friday with a loss of 50 pips. Sterling chart does not look bullish. Price candles are getting smaller which could be hints of consolidation before a reversal. Price is also near to a strong resistance zone. We prefer to stay bearish and to short if price goes higher to 1.2780.

Support 1.2730 1.2695 1.2645
Resistance 1.2770 1.2810 1.2845

XAU/USD – Price experienced a decline from 1298.50 to a low of 1276.55. This could be the correction we have been waiting for. If price is able to hold above 1276.55, we are likely to see a move up to 1303 again in the next few days. MACD is still bullish and is turning up while Stochastic is in neutral range at the moment.

Support 1287.50 1283.10 1276.55
Resistance 1292.10 1298.30 1303.10

USD/SGD – Our short position was closed this morning when profit target was reached at 1.3570. There is a possibility that price may go lower to 1.3530. Stochastic is into oversold extreme but MACD is still bearish and moving lower. A move above 1.3630 would confirm a bottom and hint of a reversal of the decline.

Support 1.3530 1.3505 1.3480
Resistance 1.3570 1.3600 1.3645

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