FX Commentary 28 January 2019

Market Talk

– EUR/USD recovered from a fresh low caused by Draghi’s dovish comments and Germany’s GDP growth downgrade as well as a below expectation German IFO data to close higher above 1.1400.

– ECB survey showed slower growth and inflation projection but ECB’s Villeroy was quick to reassure that there is no recession alert even though growth is slowing. Villeroy said rate hike will depend on state of economy. ECB’s Coeure said economic slowdown had surprised the central bank.

– Report that DUP agreed to back PM May’s alternative Brexit deal, which parliament will vote on 29th Jan gave strength to Sterling. News that EU could give UK several weeks beyond Mar 29 to finalize deal sent Sterling to almost 1.32 on Friday from a low of 1.2825 earlier in the week.

– Trump announced deal to end US government’s partial shutdown for 3 weeks. It gave US$ a little help which soon disappeared. A Wall Street Journal’s report of Fed keeping a bigger balance sheet is dovish and kept US$ weak.

– Safe haven weakened on the back of a more positive risk backdrop but with US/China trade talks coming after FOMC in the middle of the week, we could see a volatile week ahead.

Chart Focus XAU/USD

Key Points

1. Buy Gold recommendation

2. Buy Gold at 1297.20. Stop at 1292.20 and target at 1308.35

3. Fed’s pause in rate hike coupled with a weak US dollar index will weigh on US$ and gives strength to Gold

4. Price broke above a resistance zone with a strong bullish MACD trend which is indicating a continuation of the uptrend

Fundamental Comments

1. Fed’s US interest rate pause is good for Gold

2. US Dollar index has been weak, indicating a likely bearish trend for US$

Technical Comments

1. Price broke above 2 resistance levels at 1296.53 and 1298.30

2. MACD is strong and bullish

Key Levels

Support 1298.30 1293.60 1288.70
Resistance 1308.30 1315.10 1322.85

Technical Overview

USD/JPY – For our open position from 24th Jan, we would like to bring stop lower to cost at 109.75 and keep our profit target at 108.75. Stochastic is into oversold extreme but MACD is still bearish and we are hopeful of another decline into 108.75. Slope of 20EMA is steep and we think this strong trend will override the warning from Stochastic. A price move above 110.00 would negate our bearish view.

Support 109.15 108.75 108.40
Resistance 109.45 109.85 110.20

EUR/USD – Against our expectation, price has rallied above 1.1390 and this has signaled a change in trend direction. We expected a price correction to halt at 1.1390 and from this support, to the next resistance point at 1.1490. Stochastic is approaching overbought zone but MACD is still bullish and rising.

Support 1.1390 1.1355 1.1330
Resistance 1.1420 1.1455 1.1490

GBP/USD – Price continued its rally into a 5th day and the trend is still bullish and showing no signs of reversal even though Stochastic is into overbought extreme. There is a resistance at 1.3260 and it would be interesting to see if price can move above this level to 1.3295.

Support 1.3175 1.3130 1.3085
Resistance 1.3215 1.3260 1.3295

AUD/USD – We were wrong on this pair on Friday. Price broke above 0.7120 and reached a high of 0.7203 this morning. Stochastic is into overbought extreme and MACD has been moving lower although the trend is bullish. We are expecting a price correction for today to 0.7160 given the high momentum reading. Above 0.7205 would mean a test of 2019 high at 0.7235.

Support 0.7160 0.7135 0.7115
Resistance 0.7205 0.7235 0.7260

USD/CAD – Price reached a low of 1.3205 today. There is a possibility of price going lower to 1.3180 but Stochastic is into oversold extreme at the moment. MACD is still bearish but there is a correction of the MACD’s bearish trend. There is a possible reversal candlestick pattern on the hourly chart and we think there likely to see a price correction 1.3265 in the next 24 hours.

Support 1.3180 1.3150 1.3120
Resistance 1.3225 1.3265 1.3305

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