FX Commentary 21 January 2019

Market Talk

– China’s economic growth for 2018 was 6.6%, which was the slowest in 28 years. This reinforced market’s view of a slowing Chinese economy leading to a global economic slowdown. China’s policy makers have pledged more stimulus support for the economy but not a “flood” as was in the past due to mounting debts.

– China is said to offer 6-year import boost over more than 1 trillion to reduce trade gap but US wanted the imbalance cleared in 2 years. Trump commented of progress in trade talk and investors remained optimistic about successful conclusion to US-China trade talk.

– In Brexit news over the weekend, UK PM’s May seek changes to backstop while Corbyn is looking to delay exit date. Referendum’s probability now stands at 42%, which is a temporary relief to Sterling. German’s Foreign Minister said Germany is preparing for a hard Brexit. There could be some misalignment.

– UK Retail Sales for Dec fell 0.9%, more than expected and was the 3rd negative month out of the past 4 months, indicating that Brexit uncertainty is sapping consumer spending.

– UK government is presenting Brexit Plan B in parliament later today. Outcome could affect Sterling’s price. As US is on holiday today, there would be less liquidity and more volatility if announcement is made after London trading hours. Be prepared for greater volatility tonight.

Chart Focus XAU/USD

Key Points

1. Sell Gold recommendation

2. Sell Gold at 1285.20. Stop at 1292.50 and target at 1266.20

3. Gold has outperformed on talk of a pause in US rate hikes and as holding cost is high and upside limited, price could be due for a correction.

4. Price has completed its rally from 1160 and could be due for a correction after breaking down from a Triangle chart pattern.

Fundamental Comments

1. Gold has outperformed with a 12% rally on talk of a pause in US rate hikes and a price correction is due.

2. Holding cost for gold is high and with upside limited for the short term could lead to liquidation of long positions.

Technical Comments

1. Price has broken out of a Triangle chart pattern with MACD turning bearish

2. Price has reached the 161.8% Fibonacci expansion and is due for a correction

Key Levels

Support 1279.90 1276.50 1272.40
Resistance 1285.30 1290.60 1295.90

Technical Overview

USD/JPY – Price reached our 2nd resistance at 109.85 on Friday but with Stochastic in overbought extreme, we think price could be heading lower. The first stop could be 109.25 and then 108.80. We should see these 2 supports reached in the next 2-3 days. MACD is still bullish and this decline could be a corrective decline.

Support 109.25 108.80 108.50
Resistance 109.85 110.20 110.45

EUR/USD – We saw a price decline from 1.1410 to 1.1352 on Friday. That could be the decline we have been waiting for. However MACD is still bearish and Stochastic is heading lower. There could be another decline to test 1.1350. Price needs to move above 1.1390 to 1.1410 to be bullish. Watch the reaction at resistance zone and short if price is unable to move above 1.1410.

Support 1.1345 1.1290 1.1265
Resistance 1.1380 1.1410 1.1455

GBP/USD – Price has moved from 1.3000 to 1.2845 over the past 2 trading days. We view this as a price correction as this is the 50% Fibonacci point of the 1.2710 to 1.3000 rally. Until price moves below 1.2820, we will take a bullish view on Sterling before UK government presents Plan B. Brexit Plan B news later today could have an impact on price direction.

Support 1.2840 1.2820 1.2780
Resistance 1.2890 1.2925 1.2960

AUD/USD – Our short position from 17th Jan is still opened. MACD is still bearish and could be turning lower but Stochastic is currently rising. We will follow MACD and give our position another day to fulfill its potential. We recommend bringing stop lower to 0.7190 for a loss of 10 pips if touched. Profit remains at 0.7080.

Support 0.7145 0.7115 0.7080
Resistance 0.7180 0.7235 0.7260

NZD/USD – We missed out on a possible short trade as our sell call was 5 pips away from the high. Price has come close to 0.6710 but there is still no sign of a reversal. MACD is still bearish and moving lower but Stochastic is close to oversold extreme. We think the downside could be limited to 0.6690.

Support 0.6710 0.6690 0.6660
Resistance 0.6745 0.6790 0.6825

Related Posts

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.