FX Commentary 8 February 2019

Market Talk

– European Commission cut Eurozone’s growth forecast from 1.9% to 1.3%. Italian’s growth was slashed to 0.2% from 1.2% adding to concerns over Rome’s fiscal plans. Moscovici said economic deceleration is set to continue in 2019. Slowdown was more pronounced than expected and could last longer than expected.

– UK’s PM May headed to Brussels seeking backstop changes as UK government spokeswoman confirmed plan to present Brexit motion on 14th Feb in parliament but returned with no breakthrough in sight from Brussels.

– BoE left rate unchanged but lowered its 2019 GDP growth to 1.2% from 1.7% amid Brexit risk and a slowing UK economy. BoE said CPI is expected to fall below 2% in the coming months. Sterling fell to 1.2853 but recovered on Carney’s optimism of UK economy if a Brexit withdrawal deal could be done with EU.

– Worries over US/China trade talks, Euro zone economic slowdown and global economy send US equity market lower and US Treasury gained its on safe haven status. US$ extended its strengthening trend into a sixth day but market looks overstretched and in need of a correction.

– Trump said he would not meet China President Xi before tariffs deal line. Kudlow said there is still a sizeable distance to go in US/China trade talks. This increases market worries of a hike in tariffs on Chinese goods comes March.

Chart Focus USD/CAD

Key Points

1. Sell USD/CAD recommendation

2. Sell USD/CAD at 1.3365. Stop at 1.3405 and target at 1.3265

3. A pause in US interest rate is good for Canadian dollar whose decline is overdone

4. Price is approaching a strong resistance zone with both momentum oscillators in extreme zone and hinting of a reversal

Fundamental Comments

1. Fed’s pause is likely to weigh down US$

2. Canadian dollar continued weakness on a small oil price decrease is overdone

Technical Comments

1. Price is approaching a strong double resistance zone

2. MACD and Stochastic is into its extreme value and in need of a correction

Key Levels

Support 1.3295 1.3260 1.3215
Resistance 1.3330 1.3375 1.3405

Technical Overview

USD/JPY – Price stayed within the range of 110.15 to 109.55 for a 2nd day. We expect price to stay within this range until there is a breakout of this range. We favour the downside with a sapping risk appetite likely to move flows into safe haven JPY. Our target is 109.15. MACD is neutral while Stochastic is declining.

Support 109.55 109.15 108.80
Resistance 109.90 110.15 110.45

EUR/USD – The trend is bearish but we feel there should be a price correction to 1.1405 as Stochastic is into oversold extreme. MACD is still bearish. Yesterday downgrading of Eurozone economy is also likely to weigh on price. A corrective rally to 1.1390 to 1.1410 resistance zone would be a good location to get into a short position for a decline to 1.1285.

Support 1.1320 1.1285 1.1265
Resistance 1.1355 1.1390 1.1435

GBP/USD – The trend is still bearish. We do not think price can go above 1.3035 unless there is positive Brexit news. We would recommend selling into 1.3000 to 1.3035 resistance zone for a test of 1.2850 again. MACD is bearish and Stochastic is turning down. Both momentum indicators are hinting of a bearish trend.

Support 1.2940 1.2905 1.2870
Resistance 1.2975 1.3000 1.3035

XAU/USD – The short term trend is bearish. 1326 may be the high point and a correction of the previous rally is currently ongoing at the moment. We think price is likely to decline to 1301.25 in the next 24 hours. MACD is still bearish while Stochastic may face a resistance soon. Only a move above 1317.25 would negate the short term correction scenario and call for a move to 1326.

Support 1307.70 1316.80 1321.30
Resistance 1316.80 1302.60 1296.50

AUD/USD – Price broke support at 0.7075 but did not go lower to 0.7045. Instead it went to a low of 0.7058 this morning. The decline is getting shallower while MACD and Stochastic are both showing divergence warnings. Stochastic is also deep into its extreme oversold condition. We would prefer to use a corrective rally to get into a short position.

Support 0.7060 0.7030 0.7005
Resistance 0.7090 0.7115 0.7150

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