FX Commentary 8 January 2019

Market Talk

– UK PM’s May reiterated that Brexit would be on 29th Mar 2019 and there would be no extension of this date, denying UK press reports of EU and UK officials discussing extending exit date.

– Brexit debate will start on Thursday 10th Jan with a vote to take place on 15th Jan as reported by BBC citing a source. We can expect Sterling volatility to increase ahead of the vote. EU leader’s assurance on backstop may not be enough to help May get approval on her Brexit withdrawal agreement.

– US ISM Non-Manufacturing was below expectation, coming in at 57.6 against 59.0 (F). This led to speculation that Fed will slow its pace of rate hikes or we might even see a rate cut this year.

– Trade talks between the world’s 2 largest economies continue for a second day. US Commerce Secretary Wilbur Ross said on Monday that Beijing had “good faith” to work to resolve trade frictions. Ross predicted that a trade deal “we can live with” could be reached between both countries.

– Optimism of a trade deal is keeping FX market in a “risk on” mode with JPY among the biggest loser. USD/JPY has moved to its highest in the past 4 days to 109.00

Chart Focus AUD/USD

Key Points

1. Trading sell AUD/USD recommendation

2. Sell AUD/USD at 0.7125. Stop at 0.7165 and target 0.7070

3. A lower Trade Balance data is likely to weigh on the Aussie with an extreme 6% price movement over the past 3 days not helping A$ cause.

4. Price is capped at its resistance and Stochastic in overbought extreme zone is likely to lead to a price correction

Fundamental Comments

1. A 6% price movement over the past 3 days is extreme and there could be a reversion to mean

2. A lower Trade Balance data is likely to weigh on the Aussie.

Technical Comments

1. Price is capped by resistance at 0.7150

2. Stochastic is in overbought extreme and a correction could lead price to 0.7070

Key Levels

Support 0.7115 0.7090 0.7070
Resistance 0.7150 0.7185 0.7225

Technical Overview

USD/JPY – Price moved higher against our expectation to a high of 108.99 this morning. Stochastic is showing divergence warning but MACD is still bullish at the moment. On the short term hourly chart, there is a bearish Engulfing pattern, suggest a possible price decline 108.40.

Support 108.65 108.40 108.00
Resistance 108.90 109.15 109.45

EUR/USD – Price moved above 1.1440 yesterday, thereby negating our bearish view. After hitting a high of 1.14837 this morning, price has retreated back to 1.1440 crucial support point. If price can stay above this support, we should see a price movement to 1.1505. Stochastic is in the overbought extreme but MACD is still bullish.

Support 1.1435 1.1400 1.1360
Resistance 1.1480 1.1510 1.1550

GBP/USD – Sterling continues to gain against a weak US$ with price reaching 1.2790 this morning. While MACD is still bullish, Stochastic has been in its overbought extreme zone for a while now. The resistance lies at 1.2815 and this resistance could cap the rally and provoke a price decline to 1.2690.

Support 1.2730 1.2695 1.2645
Resistance 1.2790 1.2815 1.2850

XAU/USD – On the price chart, yesterday’s price range was an Inside Day pattern. This is a sign of a consolidation and we expect today to be another consolidation with the lower boundary at 1276.55. We expect 1287.70 to be the ceiling. Stochastic is into oversold extreme while MACD is still bearish.

Support 1281.70 1276.55 1270.40
Resistance 1285.60 1290.10 1294.95

USD/CAD – Our buy call yesterday was stopped out today for a loss of 50 pips. The bearish trend continues but we are seeing divergence on the MACD hourly chart. Price could be approaching the tail end of its bearish trend which started on 31 Dec 2018. We need to see a price move above 1.3305 to confirm a reversal in trend.

Support 1.3250 1.3225 1.3190
Resistance 1.3305 1.3335 1.3370

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