FX Commentary 31 January 2019

Market Talk

– More European leaders reiterated that Brexit withdrawal deal is not opened to re-negotiation. Both Austria’s Kurz and EU’s Juncker reaffirmed EU is not keen to re-negotiate Brexit deal. Ireland Foreign Minister Coveney said Ireland’s stance on backstop will not change.

– Fed kept rate unchanged after its FOMC meeting and issued a dovish statement. Fed will be patient and adopt a wait and see approach. Fed dropped its “gradual further increase” from its policy statement, hinting that US tightening cycle could be at its tail end.

– Powell’s speech and Fed’s statement that it was prepared to adjust it balance sheet normalization rallied the equity rally and weakened the US$. US equity market was up almost 2% on optimism of a peak in US interest rate cycle while US$ sank against its peer. NZ dollar was the best performing, aided by S&P and Fitch. Both have a positive outlook on NZ’s credit rating.

– China’s manufacturing PMI for Jan was better than forecast but was still in contraction. Non-manufacturing PMI was higher at 54.7 vs 53.8(F). China’s Yuan was fixed today at 6.7025, it strongest since July 2018.

– Trade talks between US and China continues into a 2nd day today. Outcome could have a bearing on risk sentiment and USD/JPY’s movement.

Chart Focus GBP/USD

Key Points

1. Trading buy GBP/USD recommendation

2. Buy GBP/USD at 1.3120. Stop at 1.3080 and target at 1.3190

3. Fed’s hint of a peak in US interest rate cycle and US Dollar Index’s weakness is in Sterling favour.

4. Rising momentum following a Double Bottom chart pattern is hinting of a price rally.

Fundamental Comments

1. Fed’s hint of a peak in interest rate cycle is in Sterling favour.

2. US Dollar Index has changed its trend direction to bearish, hinting of US$ weakness.

Technical Comments

1. Price bounced up from a Double Bottom chart pattern and is moving towards its target at 1.3190

2. MACD is bullish and rising and Stochastic is rising up as well.

Key Levels

Support 1.3120 1.3090 1.3055
Resistance 1.3160 1.3195 1.3125

Technical Overview

USD/JPY – Price has exceeded our 109.10 mark and has moved down to 108.70 support. Stochastic is into oversold extreme on the hourly chart. MACD is bearish but is turning up. We think the downside could be limited to 108.50. We expect price to move higher from this support to 109.15 again

Support 108.50 108.15 107.75
Resistance 108.85 109.15 109.50

EUR/USD – Price managed to stay above 1.1390 yesterday and rose above 1.1500 on the back of a dovish FOMC’s statement. The trend is bullish but current momentum is on the high side and a correction is needed before the rally resumed again. Support is at 1.1450 and as long as this support is not taken out, the trend will be bullish.

Support 1.1475 1.1445 1.1390
Resistance 1.1515 1.1540 1.1570

NZD/USD – Our buy call yesterday was filled and this morning, our profit target was met. We are out with a 70 pips profit. MACD is still bullish and rising. Stochastic has not reached it overbought extreme as yet. We think the upward price momentum can continue to 0.6965.

Support 0.6895 0.6855 0.6835
Resistance 0.6930 0.6970 0.7010

XAU/USD – Price reached a high of 1323.23 on the back of a weak US$. However, MACD is starting to show divergence warnings and Stochastic is into overbought extreme. We think the rally could have seen its high at 1323.23 and we favour a move lower to 1312.80.

Support 1315.95 1308.85 1304.20
Resistance 1323.23 1325.60 1334.45

USD/CAD – Our short position from 29th Jan was filled at our profit target at 1.3185. We are out with an 85 pips profit. Price has dropped lower to current 1.3130 due to a dovish FOMC’s statement. Stochastic is into oversold extreme but MACD is still bearish and trending lower. We think the downside could be limited. The next support at 1.3085 should halt price decline.

Support 1.3115 1.3085 1.3050
Resistance 1.3180 1.3205 1.3245

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