FX Commentary 16 January 2019

Market Talk

– May’s Brexit withdrawal deal suffered a crushing defeat in parliament voting. Sterling had dropped before the voting to a low of 1.2690 but recovered after the voting. Crushing defeat led to expectations that lawmakers might be forced to consider other options.

– There will be a no-confidence vote on May’s government today which PM May is likely to win. Sterling’s next direction will be dependent on May’s next move. Any decisions to avoid a no-deal Brexit would be good for Sterling. If PM May stays in power, a no Brexit is a remote possibility. Most likely, we will see re-negotiation on backstop and another vote on an amended deal.

– US$ is likely to be weak going forward in 2019 as several Fed’s members, Kashkari, Kaplan and George, expressed the desire to stall rate hike. Current market expectation for 2019 is no hike by the Fed in the year 2019.

-German’s 2018 GDP 1st reading was weak, sending EUR/USD to a 5-day low. Draghi added to the gloom when he said recent development have been weaker than expected.

– US Trade Rep Lighthizer saw little progress with China on structural issues and IP protection. Hopes were raised and equity markets had rallied after conclusion of 1st round of trade talks between US and China. 2nd round of talks at the end of Jan 2019 will have to make up more grounds for a successful conclusion to avoid tariffs.

Chart Focus USD/CHF

Key Points

1. Sell USD/CHF recommendation

2. Sell USD/CHF at 0.9890. Stop at 9925 and target at 0.9805

3. A stall in rate hike and trade tariffs risk between US and China could drive capital into safe haven benefiting CHF more than US$

4. Price capped at 127% Fibonacci expansion level coupled with Stochastic in a overbought extreme is a sign of a possible decline.

Fundamental Comments

1. Fed’s members are in favour of stall in rate hike

2. US Trade Rep Lighthizer’s remarks could bring flows back into safe haven JPY and CHF

Technical Comments

1. Price capped at Fibonacci 127% expansion level is usually a hint of a corrective move

2. Stochastic near to the extreme zone is a warning of a possible high

Key Levels

Support 0.9855 0.9820 0.9795
Resistance 0.9895 0.9920 0.9965

Technical Overview

USD/JPY – Price has been moving in a range of 107.70 to 109.10 for the past 3 days. We think the range will continue for today. Yesterday’s high at 108.50 could be the cap and we could see a move to the lower end of the range near 108.00 for today. MACD is neutral at the moment while Stochastic is near to the low end. Both are not giving any hints at the moment.

Support 108.30 107.95 107.70
Resistance 108.55 108.95 109.15

EUR/USD – We made 55 pips on our trading sell recommendation yesterday. Price went to a low of 1.1380 yesterday on the back of Sterling’s decline. For day, the 20EMA resistance at 1.1430 could cap the rally and may induce another decline to 1.1355. Stochastic is near to oversold extreme level but MACD is still bearish.

Support 1.1380 1.1345 1.1320
Resistance 1.1430 1.1480 1.1515

GBP/USD – Price is back up at 1.2850 after hitting a low of 1.2665 overnight. Stochastic is near to the overbought extreme and MACD is still bearish at the moment. We think 1.2915 should cap for today and we see a move lower to 1.2790. PM May’s next move is likely to determine Sterling’s next direction. (Market talk’s point 2)

Support 1.2835 1.2790 1.2730
Resistance 1.2870 1.2915 1.2930

XAU/USD – Price remains in the Triangle chart pattern. We are moving closer to the apex of the Triangle and we should see a breakout within the next 48 hours. Both MACD and Stochastic are neutral and indicating a consolidation in progress. We prefer a breakout to the topside. Watch out for the breakout.

Support 1286.20 1279.95 1276.50
Resistance 1295.70 1298.20 1303.00

AUD/USD – Price range has been declining on the 4-hourly chart. We could be getting close to a possible breakout and change in direction. MACD could be turning lower after an 8-day rally. We prefer a movement to the downside and we see this down move as a correction of the 8-day rally.

Support 0.7175 0.7145 0.7115
Resistance 0.7210 0.7245 0.7275

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