FX Commentary 18 January 2019

Market Talk

– UK PM May is trying to look for a proposal that could win parliament support and gives UK trade opportunities but cross parties talks are proving to be difficult. Opposition leader Corbyn refused to talk as May refused to rule out a no-deal Brexit. EU’s negotiator Barnier is open to talk and is determined to work on a Brexit deal. May’s government will present Brexit options on Monday in parliament.

– Reports that US will lift trade tariffs were soon denied by the US government. Optimism over trade deal has lifted equity market earlier but denial quickly sent it lower. Market is optimistic on trade talks despite a lack of concrete outcome.

– China’s Vice Premier Liu He will attend trade talk with US later in the month. China said drop in Dec trade was due to weak global demand and waning front loading due to tariffs.

– Fitch said that Aussie property market conditions are likely to soften following yesterday’s Home Loans data. AMP Capital, Australia’s largest fund manager is forecasting RBA to cut rate to 1% by end 2019 from current 1.5%. They expect AUD/USD to fall to 0.60 with further increase in rate differential in favours of US$.

– A better than expected Philly Fed Manufacturing Index and optimism on US/China trade talks diminished demand for safe haven, sending Treasury yields higher and USD/JPY higher.

Chart Focus NZD/USD

Key Points

1. Sell NZD/USD recommendation

2. Sell NZD/USD at 0.6790. Stop at 0.6845 and target at 0.6705

3. Property market conditions and China’s slower pace of economic growth are likely to weigh down NZ$

4. Price in a correction phase with MACD trend still bearish and turning down.

Fundamental Comments

1. Fitch said property market conditions are likely to soften in Australia and New Zealand

2. China’s slower pace of economic growth is likely to weigh on NZ$

Technical Comments

1. Price could be making a ABC correction with Fibonacci 62% acting as resistance

2. MACD is turning bearish and could be turning down

Key Levels

Support 0.6745 0.6725 0.6695
Resistance 0.6790 0.6825 0.6845

Technical Overview

USD/JPY – Price has moved above our upper boundary of 109.15. Resistance at 109.50 could cap this rally as Stochastic is already into overbought extreme and MACD is losing momentum. If price is capped at 109.50, we could expect a decline to 108.70

Support 109.15 108.70 108.35
Resistance 109.50 109.85 110.20

EUR/USD – Price moves in a sideway manner yesterday. Our view remains the same as yesterday. We are expecting a price correction to 1.1425 and from there a possible decline to 1.1350 to complete the decline. MACD is bearish but Stochastic is correcting and moving higher.

Support 1.1370 1.1345 1.1290
Resistance 1.1410 1.1455 1.1495

GBP/USD – Price continues to move higher on optimism and expectation of soft Brexit. Price is close to 1.30. The next resistance is at 1.3030. Stochastic is into overbought extreme but MACD is still bullish and rising. We expect Sterling to move on Brexit news ahead of Monday’s Brexit options.

Support 1.2960 1.2915 1.2850
Resistance 1.3015 1.3060 1.3090

XAU/USD – Price is still trapped within the Triangle chart pattern. We are approaching the apex of the Triangle. We are anticipating a breakout of this Triangle within the next couple of days. The boundaries are at 1296 and 1285. Wait for the breakout for direction.

Support 1290.05 1285.05 1279.90
Resistance 1292.40 1295.90 1303.00

AUD/USD – Our sell call was filled and we are now short at 0.7185. Our view remains the same. Stop and profit target also remain unchanged. MACD is neutral. Price may move higher as Stochastic is rising but should not move above 0.7235. A break of support at 0.7145 would accelerate the decline to 0.7080.

Support 0.7180 0.7145 0.7115
Resistance 0.7235 0.7260 0.7300

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