FX Commentary 14 January 2019

Market Talk

– China trade balance in Dec saw a large fall in export while import was also lower. It showed that trade war with US could have caused an impact. We can expect both US and China to work towards a trade deal as US trade deficit with China in year 2018 was the largest on record. AUD/USD was dragged lower as a result of China’s trade data.

– Brexit rhetoric is likely to determine the direction of Sterling. Talk of a delay in Article 50 sent Sterling above 1.2815 and changed the short term trend direction. While May had said she will not seek an extension there are UK reports of EU preparing to delay Brexit till at least July 2019.

– UK parliament vote on Brexit withdrawal is scheduled for tomorrow with May’s deal likely to be defeated. UK cabinet ministers will be exploring options once May’s loses 15th Jan vote with parliament expecting Brexit options 3 days later. Be prepared for Sterling volatility.

– EUR/USD was capped by resistance at 1.1535 and retreated lower even as the greenback’s outlook remained bleak on the back of a slower pace of interest rate hikes by the Federal Reserve Bank.

– Crude oil price is lower today, continuing from last Friday’s decline as global economic slowdown returned to haunt the financial markets. Equity market is lower and Canadian dollar lost some ground against the US$

Chart Focus NZD/USD

Key Points

1. Buy NZD/USD recommendation

2. Buy NZD/USD at 0.6770. Stop at 0.6710 and target at 0.6880

3. A weaker US$ due to a slower pace of rate hike is likely to lead to a weaker US$ and benefit NZ$ as a result

4. A price decline in a rising bullish trend environment with a bullish MACD offers good buying opportunity.

Fundamental Comments

1. Fed’s decision to delay rate hikes will weaken the US$ and benefit the NZ$.

2. NZD is likely to regain its strength as China’s Yuan was fixed at a stronger rate this morning once the effect of a poor China trade data filtered off.

Technical Comments

1. Price correction to support zone offers a buying opportunity in a rising bullish trend environment.

2. MACD is bullish and a falling Stochastic into oversold extreme could offer a good buying opportunity

Key Levels

Support 0.6795 0.6765 0.6705
Resistance 0.6845 0.6880 0.6915

Technical Overview

USD/JPY – Price was capped at 108.60 and has turned lower to 108.03. MACD is neutral but Stochastic is into oversold extreme level. If price is supported above 107.95, we may see another test to 108.50. Price has been moving in a range since the flash crash and we expect this range movement to continue.

Support 107.90 107.70 107.35
Resistance 108.25 108.55 108.95

EUR/USD – Our long position was stopped out for a small 25 pips loss on Friday night. Price dropped to a low of 1.1455 and this is at the 127% Fibonacci expansion target. If price is able to hold this support, we should see a movement to 1.1535. However MACD is hinting of another decline before a change in trend. Wait for a movement below 1.1455 to 1.1430 before getting into a long position.

Support 1.1455 1.1430 1.1390
Resistance 1.1485 1.1515 1.1540

GBP/USD – Price moved above 1.2815 on talks of delay in Brexit beyond Mar 29th 2019. MACD is bullish but Stochastic is into overbought extreme zone at the moment. With parliament due to vote tomorrow, we expect more volatility ahead. We expect price movement to be led by Brexit rhetoric. We prefer to stay on the sideline.

Support 1.2810 1.2775 1.2715
Resistance 1.2865 1.2925 1.2960

XAU/USD – Our buy call on Friday was filled when price dropped to a low of 1286.75. Stop remains at 1285.30 and target at 1303.00. Our view remains bullish for 1303. MACD is still bullish and Stochastic could be turning up soon. The triangle pattern also offers a view that there could be one more rally to come.

Support 1289.85 1285.95 1280.10
Resistance 1293.05 1296.90 1303.00

USD/CAD – Price test the low again and we now have a mini Double Bottom at 1.3180. Price has move above the neckline at 1.3257. We are expecting a price movement to 1.3327 over the next couple of days. A move below 1.3255 would negate our bullish short term view. MACD is rising but still is bearish.

Support 1.3255 1.3220 1.3180
Resistance 1.3295 1.3330 1.3365

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