FX Commentary 22 January 2019

Market Talk

– UK’s PM May wants to work with EU on a backstop framework that would be more palatable to UK parliament as her Plan B. EU shared May’s determination for a Brexit deal but negotiation could be difficult though Merkel pledges to work till the last day on Brexit.

– UK lawmakers proposed a bill to block a no-deal Brexit. There would be a Brexit delay if parliament cannot agree on a deal by Feb 26th 2019 by way of Article 50. A “no hard Brexit” is good for Sterling.

– IMF downgraded global economic outlook in 2019 and 2020 citing a bigger than expected slowdown in China and Eurozone. IMF warned that failure to resolve trade tensions could further destabilize a slowing economy. Coming one day after China’s slowest economic growth in 18 years, US$ and safe haven gained on IMF forecast on worries of a slowing global economy.

– Report that US will proceed with extradition request for a Huawei executive intensified concerns that relationship between the world’s 2 largest economies could be strained and further destabilize a slowing global economy.

– BOJ will be conducting its Monterey Policy meeting tomorrow, to be followed by a press conference. Market expectation is a no change in rate.

Chart Focus USD/CAD

Key Points

1. Buy USD/CAD recommendation

2. Buy USD/CAD at 1.3280. Stop at 1.3220 and target at 1.3360

3. Concerns over a slowing global economy and Crude oil’s price decline will weigh on Canadian dollars but aid the US$

4. Price has a reversal chart pattern which was confirmed by the MACD and is moving higher towards its chart pattern’s target.

Fundamental Comments

1. Decline in price of Crude Oil and natural gas are likely to weigh on Canadian dollar

2. Concerns over a slowing global economy will give strength to US$ as a safe haven

Technical Comments

1. Price has a mini Double Bottom chart pattern and is moving towards target at 1.3340

2. MACD is moving higher after a bullish divergence warning.

Key Levels

Support 1.3280 1.3235 1.3185
Resistance 1.3315 1.3365 1.3405

Technical Overview

USD/JPY – Price was capped at 109.85 and has moved lower to current rate of 109.40. Our view remained the same as yesterday. Our first target is at 109.25 and we expect price to move lower to 108.80 in the next couple of days. While Stochastic is near to oversold extreme, MACD is still bearish and moving lower.

Support 109.25 108.80 108.50
Resistance 109.55 109.85 110.20

EUR/USD – Price was capped at 1.1390 overnight and has moved lower to 1.1350. Price is close to an important support at 1.1345 and a break of this support could see a price move to 1.1290. Stochastic is near to the oversold zone but MACD is still bearish and turning lower. We prefer to follow MACD and support the view of a price move to 1.1290.

Support 1.1345 1.1290 1.1265
Resistance 1.1390 1.1410 1.1455

GBP/USD – Price stayed above 1.2820 yesterday and moved to a high of 1.2910 overnight. Our Sterling view is still bullish and we expect support to hold at 1.2825. We expect another price move to 1.30 again in the next few days. Stochastic is into oversold zone while MACD is turning bullish and moving higher.

Support 1.2845 1.2820 1.2780
Resistance 1.2890 1.2925 1.2960

XAU/USD – Price has continued to move lower after a break of the Triangle chart pattern. Price found support at 1276.60 this morning and has moved sideways. We view this as a temporary consolidation and expect price to move lower to 1270.50 after the consolidation is done. A price move above 1283.30 would negate the consolidation and decline and call for a move up to 1288.75.

Support 1276.50 1270.15 1266.20
Resistance 1281.25 1286.75 1294.80

AUD/USD – Our short position from 17th Jan is still opened. We would like to bring stop to cost at 0.7180 and profit objective higher to 0.7120. Stochastic has moved into oversold extreme for a 2nd time and MACD is showing sign of divergence, prompting us to believe a low could be nearby.

Support 0.7120 0.7080 0.7045
Resistance 0.7160 0.7190 0.7235

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