FX Commentary 7 February 2019

Market Talk

– UK’s PM May is seeking changes to backstop, not removal in talks with EU but Juncker cannot accept the idea to re-open Brexit negotiation. If a deal could be reached, UK parliament could vote on 13th Feb.  Merkel hinted that EU would do all that is possible to ensure there will not be a no-deal Brexit.

– Sterling will gain between 2 and 5 percent if Britain parts ways with the European Union with a divorce deal but will slide between 5 and 10 percent in the event of a disorderly Brexit, a Reuters poll found on Wednesday.

– RBA stuck with its upbeat narrative on the Australian economy at its first policy meeting of the year, while leaving its benchmark interest rate at 1.5% and forecasting a gradual lift in inflation this year and next year. Lowe changed track about the next rate direction from previously “more likely to be up to evenly balanced” sent A/$ lower.

– Trump in his Union’s speech, stressed new trade deal with China must include ending unfair trade practices, reduce US chronic trade deficit and protect American jobs. Mnuchin and Lighthizer are heading off to Beijing for further trade talks next week, aiming to clinch a deal to avert a 2nd March increase in US tariffs on Chinese good.

– BoE monetary policy meeting is at 8pm tonight with press conference at 8.30pm. No change in rate is expected for this meeting.

Chart Focus USD/SGD

Key Points

1. Buy USD/SGD recommendation

2. Buy USD/SGD at 1.3525. Stop at 1.3485 and target at 1.3595

3. A decrease in risk appetite and a recovery in the Dollar Index is keeping US$ strong

4. A reversal chart pattern is hinting of a change in price trend from bearish to bullish.

Fundamental Comments

1. A recovery in US Dollar Index is keeping US$ strong

2. A decrease in risk appetite has led capital inflow into US$

Technical Comments

1. An inverse Head and Shoulder chart pattern is hinting of a price rally

2. A decline in a bullish MACD trend provides an opportunity to buy into the price dip.

Key Levels

Support 1.3525 1.3500 1.3475
Resistance 1.3560 1.3590 1.3615

Technical Overview

USD/JPY – Price is consolidating in a range of 110.15 to 109.55 after breaking above 110.00. MACD is still bullish while Stochastic is closer to the overbought extreme during its correction. These could be a bullish sign with price likely to break above 110.15. We think a test of 110.45 is likely after this consolidation in the next few days.

Support 109.55 109.15 108.95
Resistance 110.15 110.45 110.90

EUR/USD – Price has declined for the past 5 days from a high of 1.1515 to current level. While we remain bearish on this pair, we feel that a correction is warranted. Stochastic is deep into oversold extreme and MACD is showing bullish divergence and hinting of a price low. We see a corrective rally to 1.1420 over the next few days.

Support 1.1355 1.1320 1.1285
Resistance 1.1390 1.1435 1.1485

GBP/USD – Price has been able to hold support at 1.2920 for the past 2 days and both Stochastic and MACD are showing bullish divergence warnings of a possible low. We think a corrective rally to 1.2980 is likely to correct the low readings of both momentum indicators. A move below 1.2920 would call for a test of the next support at 1.2830.

Support 1.2915 1.2870 1.2830
Resistance 1.2945 1.2980 1.3015

XAU/USD – Our short call on gold from 1st Feb was filled at 1308.90. We took a profit of $9.50 from this trade. The decline is deeper than we expected. There is a high chance that price will decline to support zone at 1298.50 to 1297.60 as both Stochastic and MACD are still declining and showing no signs of a reversal.

Support 1301.40 1297.60 1294.60
Resistance 1306.20 1309.65 1316.80

AUD/USD – Our short call on 4th Feb was filled the next day and profit objective was met on 6th Feb. We booked 65 pips from this trade. Price is much lower after RBA changed it interest rate track. Stochastic and MACD are both showing divergences with price and we think there should be a price correction in the next 24 hours. We are near to an important support at 0.7075. If price holds this support, there will be a correction to 0.7150. A break will lead price lower to 0.7045. Watch support at 0.7075.

Support 0.7075 0.7045 0.7015
Resistance 0.7115 0.7150 0.7190

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