FX Commentary 25 January 2019

Market Talk

– Germany Jan Flash Manufacturing PMI was below expectation, 49.9 vs 51.1, causing a 40 pips blip in EUR/USD price before ECB meeting. This comes after IMF had cited Eurozone as a reason for down grading global economic growth yesterday.

– ECB kept monetary policy unchanged. In press conference, Draghi acknowledged “risk of growth is skewed to the downside” and near term data is likely to be weaker than previously anticipated. ECB kept rate hike on the table for 2019 even as the euro zone economy suffered its biggest slowdown in 5 years.

– EU’s Barnier warned that if no positive proposals are made by UK, it will be a no-deal Brexit. DUP was reported to be supporting May’s Plan B but it was reported UK government is fighting efforts to delay Brexit.

– Mnuchin thinks US and China are making lots of progress but Wilbur Ross has changed his tune. Ross said that US and China are miles and miles apart from a trade resolution. Kudlow wants China’s talk to deal with IP and technology issues.

– Trade tensions renewed safe haven demand sending Treasury yields and USD/JPY lower. Gold saw only a little change while Sterling continues to strengthen on the back of Brexit optimism with support from DUP for May’s Plan B.

Chart Focus USD/CAD

Key Points

1. Sell USD/CAD recommendation

2. Sell USD/CAD at 1.3335. Stop at 1.3375 and target at 1.3205

3. A rise in crude oil price and US government shut down are likely to benefit Canadian dollar

4. Price capped at 38% Fibonacci correction with both MACD and Stochastic giving bearish divergence signals are signs of a reversal.

Fundamental Comments

1. A rise in crude oil price is likely to be benefit Canadian dollar

2. US government shut down will hurt US growth in the first quarter which is likely to weigh down on US$

Technical Comments

1. Price is capped at the Fibonacci 38% for a 2nd consecutive day

2. Both MACD and Stochastic are giving out bearish divergence warnings

Key Levels

Support 1.3300 1.3265 1.3225
Resistance 1.3335 1.3380 1.3420

Technical Overview

USD/JPY – Our sell call was filled this morning. Our view remains the same as yesterday. We think price should not move above 110.00 and price should be moving down to 108.75. Both Stochastic and MACD have bearish divergence warnings. A break of 109.40 would confirm a high in place and a decline to follow.

Support 109.45 109.15 108.80
Resistance 109.85 110.25 110.50

EUR/USD – Price reached a low of 1.1288 overnight on the back of a poor German Flash PMI and Draghi’s dovish comments. Price is likely to find resistance at 1.1350 and we are expecting another decline to 1.1280 to complete the decline. A move above 1.1390 would negate our bearish view. As there are divergences warnings from MACD and Stochastic, we think the downside will not be far away from overnight low.

Support 1.1290 1.1265 1.1215
Resistance 1.1340 1.1390 1.1415

GBP/USD – Price reached a low of 1.3013 ahead of our 1.2990 projection. Sterling has bounced higher to 1.3140 on the back of DUP supporting May’s Plan B news. This rally could be the 5th wave and last rally as we are getting divergence warning from MACD. We are looking for a reversal signal to get into a bearish view.

Support 1.3095 1.3055 1.3005
Resistance 1.3145 1.3175 1.3230

XAU/USD – We would like to recommend lowering stop on our open position to cost at 1285.60. Price was supported at the previous low of 1276.60 for a 2nd time which led to a rally in price to current level. There are bullish divergence warnings from MACD and Stochastic. If price were to break above 1286, we are likely to see a move to 1294.

Support 1276.30 1270.80 1266.40
Resistance 1286.50 1290.60 1294.90

AUD/USD – Price reached a low of 0.7075 overnight. Stochastic is into oversold extreme but MACD is still bearish at the moment. We do not think the downtrend is completed. We are expecting a small rally in price to 0.7120 to correct the low Stochastic reading and from there another decline into 0.7025.

Support 0.7075 0.7045 0.7025
Resistance 0.7115 0.7165 0.7195

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