FX Commentary 1 February 2019

Market Talk

– While EU’s leaders had said Brexit agreement was not opened to re-negotiation, May’s position is unchanged on Britain leaving EU on the 29th of Mar 2019. This might increase the probability of UK leaving without a divorce deal as backstop would not be easy to compromise.

German Dec Retail Sales came out at -4.3% against +0.6% (F). Weidmann’s remark that “German GDP probably be well below 1.5% in 2019” sank the EUR/USD amidst worries of a slowing German and Euro zone economy

US data overnight was poor with Chicago Jan PMI below expectation. With poor German and China economic data, worries about a global economic slowdown sent USD/JPY to an overnight low of 108.50

Trump said meetings with China on trade talks are going well but Xi sent him a letter hoping both sides can meet halfway. He does not know as yet if he will postpone tariffs post March 1st deadline.

Tonight Non-Farm Payroll at 9.30pm will be keenly watched.

Chart Focus Gold

Key Points

1. Trading sell on Gold

2. Sell Gold at 1318.40. Stop at 1326.30 and target at 1308.90

3. The 6-day, 4% rally coupled with expensive holding cost make a price correction likely

4. Reversal candlestick price pattern together with momentum showing divergence is hinting of a price reversal

Fundamental Comments

1. The 6-day, 4% rally is in need to a correction.

2. Expensive holding cost with limited upside make holding Gold unattractive

Technical Comments

1. Reversal Shooting Star candlestick pattern hint of a price and trend reversal

2. MACD and Stochastic are both showing divergence and hinting of a reversal.

Key Levels

Support 1317.30 1308.85 1304.20
Resistance 1323.23 1326.20 1334.45

Technical Overview

USD/JPY – Price moved lower to 108.50 overnight but has moved higher this morning. The trend is still bearish but the important resistance at 109.15 will need to hold if the bearish trend is to persist. We think 109.15 would be a good location to get into a short position for 108.50 again with stop at 109.60.

Support 108.50 108.15 107.75
Resistance 109.95 109.15 109.50

EUR/USD – Price may have made a temporary high at 1.1515. We may see a price decline back to test the support zone at 1.1390 to 1.1410. If price fails to hold this support, it is likely to move lower to 1.1310. Both MACD and Stochastic are giving out divergence signals. Above 1.1515 would negate our bearish view.

Support 1.1430 1.1390 1.1355
Resistance 1.1475 1.1515 1.1540

GBP/USD – Our buy call was stopped out today at 1.3080. We are out with a 40 pips loss. We think the current price decline is a correction. If price stays above 1.3050, we are likely to see another test of 1.3200 again. Stochastic is turning higher while MACD is neutral at the moment.

Support 1.3090 1.3055 1.3015
Resistance 1.3135 1.3160 1.3195

AUD/USD – Price reached a high of 0.7295 after breaking above the previous high at 0.7235. The trend may have changed to bullish. MACD is bullish but Stochastic is turning down from overbought extreme. We think there could be a price correction but price should be supported at 0.7235 to 0.7200. We expect a price rally 0.7320 after the correction is over.

Support 0.7235 0.7200 0.7175
Resistance 0.7270 0.7305 0.7335

USD/CAD – Price reached a low of 1.3117 and managed to stay above this support for 2 consecutive days. While the trend is still bearish, we think there should be a correction before the down trend resumes. Currently the correction may be running in the form of a rectangle. We expected price to meet resistance and be capped at 1.3170.

Support 1.3140 1.3115 1.3085
Resistance 1.3180 1.3205 1.3245

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