FX Commentary 29 January 2019

Market Talk

– UK parliament will vote later today on a Brexit Plan B. May is seeking support for an amendment that seeks to replace backstop with alternative arrangement. An amendment that seeks to prevent a “no deal” Brexit is also likely to be supported. Both are good news for Sterling. BOE’s Carney assured that BOE has room to react if a hard Brexit occurs and monetary policy could move in either way.

– EU has reiterated again that Brexit deal is not open to re-negotiation. Sending May to Brussels does not guarantee any success while a “no-deal” Brexit could fracture May’s own party of pro-Brexit lawmakers. There is only a short 2 more months to Brexit withdrawal date 29 Mar 2019.

– Aussie was a big mover today. Australia NAB Dec business condition was very poor and coupled with the indictment of Huawei on fraud charges send AUD/USD down to 0.7140.

– US indictment of Huawei on fraud charges and confirmed extradition of its CFO from Canada added to fragile relationship between the world 2 biggest economies ahead of trade talks. It could undermine trade talks scheduled later in the week as well. IMF had warned that trade tariffs could undermined global economic growth.

– Draghi in his speech yesterday confirmed what market has been expecting. Recent incoming data continued to be weaker than expected. Pritchard warned of a credit crunch in Italy when economic gloom gripes Europe.

Chart Focus USD/CAD

Key Points

1. Trading sell on USD/CAD

2. Sell USD/CAD at 1.3270. Stop at 1.3320 and target at 1.3185

3. Fed’s pause in rate hike and US sweeping sanctions on Venezuela’s state oil firm is likely to favour Canadian dollar

4. Price is capped at 20EMA with MACD in a bearish trend that hints of a decline in price.

Fundamental Comments

1. Crude oil price could rise with US sweeping sanctions on Venezuela’s state oil firm.

2. Fed’s pause in rate hike is likely to weigh down US$

Technical Comments

1. Price is capped at the 20EMA and the trend is down

2. MACD is bearish and is turning down

Key Levels

Support 1.3230 1.3200 1.3180
Resistance 1.3265 1.3290 1.3335

Technical Overview

USD/JPY – Our position from 24th Jan is still opened. We would recommend bringing stop lower to 109.50 and profit target higher to 109.10. MACD is bearish but is turning up from the low. Stochastic is into oversold extreme at the moment. We could be near to a low even though the trend is still bearish.

Support 109.10 108.75 108.40
Resistance 109.45 109.85 110.20

EUR/USD – Our view remains the same as yesterday. Price reached a low of 1.1388 and has now moved to 1.1435. We expect price to proceed higher to 1.1490. MACD is bullish and is turning up. As Stochastic is overbought extreme we are wary of price turning down before reaching 1.1490.

Support 1.1415 1.1388 1.1355
Resistance 1.1455 1.1490 1.1515

GBP/USD – Price stalled at 1.3216 and declined for most of yesterday. Price is sitting on the 20EMA support now at 1.3135. The decline yesterday looked more like a corrective decline than a bearish trend. We favour another push higher to 1.3215 and beyond if price can stay above 1.3130. A move below 1.3130 would target the next support at 1.3060.

Support 1.3130 1.3085 1.3030
Resistance 1.3170 1.3215 1.3260

XAU/USD – Gold pulled back into our targeted zone but missed our buy order by $0.22. Price is now above yesterday’s high and should be on its way to 1308. MACD is starting to turn higher in a bullish trend but Stochastic is into overbought extreme. Given the strong trend in Gold, we favour MACD over Stochastic.

Support 1298.30 1293.60 1288.70
Resistance 1308.30 1315.10 1322.85

AUD/USD – Price had a deeper pullback than our expectation due to the poor NAB business confidence data. Price corrected to 0.7137 which was Fibonacci 50% of the rally over the past 2 days. We expect support at 0.7137 to hold and a price move to test the high at 0.7203 again in the next 48 hours.

Support 0.7135 0.7115 0.7075
Resistance 0.7175 0.7205 0.7235

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