FX Commentary 11 January 2019

Market Talk

– Powell reiterated Fed is waiting, watching and can be patient and flexible as inflation is low and under control. Bullard’s dovish comments against a Dec rate hike and Fed should not be projecting further hike helped to keep US$ weak.

– US jobless claims dropped lower to 216K and data is the lowest in a month. It showed the US economy is doing well and with inflation under control, Fed can to be patient with rate hike. It is good for the equity market but not for the US$.

– Trade talks are progressing to a higher level with Chinese Vice-Premier to visit US for talks on Jan 30th and 31th. US Treasury Secretary Mnuchin will consider an extension to sanctions time line. Hopefully with a longer time period, US and China can conclude a trade deal and end tariffs.

– May is said to be still working to achieve further assurance from EU on Brexit deal but Opposition leader Corbyn is pressing for election if May can’t pass Brexit deal in parliament. Be prepared for higher Sterling volatility.

– Chinese Yuan is at its strongest level since Aug 2018 on growing optimism of a trade deal. Aussie, being a proxy of Yuan, is at its best level Dec 2018. We expect Aussie to continue its recovery from flash crash low.

Chart Focus XAU/USD

Key Points

1. Buy Gold recommendation

2. Buy Gold at 1291.30. Stop at 1285.30 and target at 1303.00

3. A weak US$ makes Gold attractive and less rate hikes make holding cost for Gold lower.

4. A Triangle pattern hints of another rally with MACD confirming a possible rally after turning up.

Fundamental Comments

1. US$ strength may have peaked with the Fed likely to pause its rate hikes.

2. US Dollar Index have hit a peak and is declining.

Technical Comments

1. A Triangle pattern is usually a consolidation pattern and means another rally to complete the rally

2. MACD is turning bullish after the being negative during the Triangle consolidation.

Key Levels

Support 1291.10 1285.95 1280.10
Resistance 1296.90 1303.10 1309.10

Technical Overview

USD/JPY – Price has moved up to 108.50 after its ability to hold above 107.75. We think price may be able to continue towards 108.90. MACD has turned bullish and is also turning higher from the zero line. Stochastic is near to the low and when it turns up, will confirm price rally to 108.90.

Support 108.20 107.90 107.50
Resistance 108.50 108.90 109.10

EUR/USD – We are long EUR/USD as our buy call was filled at 1.1505 yesterday. We will keep our profit order at 1.1590 but will raise our stop order higher to 1.1480. Price has been supported by 20EMA and we think price will progress higher later if it can hold above this support area.

Support 1.1505 1.1485 1.1440
Resistance 1.1540 1.1575 1.1620

GBP/USD – Sterling was in a small range overnight despite ongoing Brexit rhetoric. We remain bearish as long as price is unable to break above 1.2815. The price to watch out for is at 1.2705. MACD is getting weaker and could turn lower with further price decline.

Support 1.2735 1.2705 1.2650
Resistance 1.2780 1.2815 1.2850

AUD/USD – Both MACD and Stochastic trend are bullish and strong. However price may be coming into a strong resistance area at 0.7250. This may cap the rally and may provoke a correction before the bullish trend resumes again. Support is at 0.7180 and we are expecting a range of 0.7170 to 0.7250.

Support 0.7190 0.7170 0.7120
Resistance 0.7250 0.7280 0.7315

USD/CAD – Trend remains bearish. We have seen a drastic correction in MACD and Stochastic movement but little price correction. This is not a good sign. We were expecting a move to 1.3320 but it seems the correction could have run out at 1.3258 and price could be testing 1.3160 again over the next couple of days.

Support 1.3178 1.3125 1.3080
Resistance 1.3260 1.3305 1.3330

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