FX Commentary 10 January 2019

Market Talk

– Bank of Canada left overnight rate unchanged at 1.75% as expected. Poloz maintains that Canadian economy is on solid footing and is aware of negative signals in financial market.

– Fed’s Bostic weakened US$ when he said Fed should let the economy run for a while and see how it responds. FOMC minutes showed that several policy makers were in favour of the central bank keeping rate steady. There is growing market expectations that Fed may pause in 2019.

– US shutdown continues as Trump could not reach an agreement with Democrats on border wall funding. A prolong shutdown could erode confidence in the US government and lead to US$ weakness.

– UK PM May suffered a first defeat on Brexit in parliament when lawmakers demanded her government comes up with a Plan B within days if she loses a vote on her Brexit withdrawal deal.

– China Commerce Ministry said US and China agreed to continue close communication on trade. There were no detail updates after talks between the world’s two largest economies concluded trade talks yesterday.

Chart Focus EUR/USD

Key Points

1. Buy EUR/USD recommendation

2. Buy EUR/USD at 1.1505. Stop at 1.1455 and target at 1.1590

3. US$ strength could have peaked with Fed’s policy makers looking for a pause in rate hike

4. Price has broken above a resistance point and a pullback offers a good buying opportunity to get into the bullish trend.

Fundamental Comments

1. FOMC minutes implied a pause in Fed’s rate hike

2. Several Fed’s policy makers were in favour of keep rate steady.

Technical Comments

1. Price have broken above 1.1490, forming an Ascending Triangle on the Daily chart

2. MACD is bullish but Stochastic is in extreme zone. A pullback in Stochastic and price would offer a good entry.

Key Levels

Support 1.1530 1.1495 1.1460
Resistance 1.1575 1.1620 1.1650

Technical Overview

USD/JPY – Price came close to 109.00 and has since decline below 108.00 to 107.80. We see 107.50 as a price support. If price can hold this support, we see price going up to 108.30. MACD is neutral at the moment but Stochastic is into oversold extreme. We feel the decline could be limited.

Support 107.50 107.15 106.80
Resistance 107.90 108.30 108.90

AUD/USD – Price reached 0.7190 this morning but there were divergence warnings from both MACD and Stochastic. While we are bullish on a longer term basis on AUD/USD, we think there could be a correction before the bullish trend resumes again. We see price going lower to 0.7090 to 0.7100 and view that as a good buying opportunity for the longer term.

Support 0.7150 0.7115 0.7090
Resistance 0.7195 0.7235 0.7280

GBP/USD – Our sell call yesterday was stopped out at 1.2800 when price reached a high of 1.2803 this morning. Price is still capped at resistance at 1.2815. MACD is showing divergence on the 4-hour chart; warning of a possible high but Stochastic is still rising and has not reached the overbought extreme as yet. If price is below 1.2815, we prefer to stay bearish on Sterling.

Support 1.2755 1.2705 1.2685
Resistance 1.2815 1.2850 1.2885

XAU/USD – Price broke out of a Triangle chart pattern at 1290.15. Triangle is usually a continuation pattern and we see price going above 1298 to 1303 to complete this gold rally. MACD is bullish but Stochastic has reached its extreme zone. Stochastic is hinting of a limited rally.

Support 1291.10 1286.95 1280.10
Resistance 1298.30 1303.10 1309.10

USD/CAD – Price reached close to our 1.3160 target overnight. The low was 1.3178 and we think this could be the bottom we were looking for. Both MACD and Stochastic are showing divergence warnings of a possible low in place. We are short term bull and looking at a price move to 1.3320. A move below 1.3160 would negate our bullish view.

Support 1.3178 1.3125 1.3080
Resistance 1.3265 1.3320 1.3370

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