FX Commentary 17 January 2019

Market Talk

– UK PM’s May won a no-confidence vote against her government by a mere 19 votes. She is looking for a Brexit plan that can win parliament support with an option that gives UK global trade opportunities. EC had said Brexit withdrawal agreement is not opened for re-negotiation.

– With little room for negotiation and time running out, there is a growing expectation that Article 50 would be triggered. An extension beyond Mar 29th would give both UK and EU time to come up with a better divorce deal. This expectation is keeping Sterling buoyant.

– EUR/USD was lower on growing concerns over slowing and weak economic growth in Eurozone. ECB’s Villeroy said policy normalization must be gradual. There are reports that Trump was inclined to impose US auto tariffs in a move to prompt EU to negotiate a trade deal. This could weigh down EUR/USD.

-US Treasury yields rose as a result of reduced safe haven buying. With an increase in risk appetite, both safe haven JPY and CHF were weaker as well.

– Today is day 2 of G20 meeting. Day 1 was overshadowed by Brexit events. We do not foresee any major events out of this G20 meeting.

Chart Focus AUD/USD

Key Points

1. Sell AUD/USD recommendation

2. Sell AUD/USD at 0.7180. Stop at 0.7235 and target at 0.7080

3. Australian Home Loan data showed a decline and indicated a weak property and economic climate in Australia.

4. A contraction in price range and divergence warnings from MACD and Stochastic are signs of a rally coming to an end

Fundamental Comments

1. Australian Home Loan data this morning showed a decline of 0.9%, resulting in Citibank cutting mortgage rate by 240bp

2. Interest rate differential is in US$ favour and makes long AUD/USD costly.

Technical Comments

1. A contraction in price range is usually a sign of a rally coming to an end.

2. Divergence warnings from both MACD and Stochastic of a potential top

Key Levels

Support 0.7145 0.7115 0.7080
Resistance 0.7180 0.7235 0.7255

Technical Overview

USD/JPY – Price has reached the top of our range boundary at 109.15. While MACD is neutral, Stochastic has reached the overbought extreme. If the trend remains neutral, price is likely to be capped at 109.15 and is likely to move lower to 108.35. A move above 109.20 would negate our range view.

Support 108.60 108.35 107.90
Resistance 109.15 109.50 109.85

EUR/USD – Price reached a high of 1.1425 and has fallen to 1.1380. Our view remains the same as yesterday. We think price is likely to test 1.1355 to 1.1345 to complete the decline. Resistance at 1.1425 could cap any price rally. While MACD is still bearish, Stochastic is into oversold extreme. The downside could be limited to 1.1355.

Support 1.1375 1.1345 1.1290
Resistance 1.1400 1.1425 1.1455

GBP/USD – Trend remains bullish after parliament vote but we think the topside looks exhausted. There are divergence warnings from both MACD and Stochastic. Currently price sits on the 20EMA support and once this support fails, we could see a price movement to 1.2815. A move beyond 1.2915 would negate our short term bearish view.

Support 1.2850 1.2810 1.2780
Resistance 1.2915 1.2965 1.3015

XAU/USD – Price is still trapped within the Triangle chart pattern. Yesterday’s price rally was capped at 1295 and today we may see a movement to 1287 which is still within the Triangle range. While MACD is still bullish, Stochastic is moving close to oversold extreme. Price may bottom ahead of 1287. Watch for the breakout. We prefer a breakout move to the topside.

Support 1290.05 1287.05 1279.90
Resistance 1292.40 1296.90 1303.00

AUD/JPY – Over the past 3 days, price has tested the high of 78.35 twice without success. This has resulted in a Double Top chart pattern. If price were to drop below 77.90, it would confirm the Double Top chart pattern and calls for a move to 77.50. Both MACD and Stochastic had divergence warnings of a possible top. A move above 78.35 would negate this bearish scenario.

Support 77.90 77.60 77.30
Resistance 78.15 78.35 78.65

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