FX Commentary 11 February 2019

Market Talk

– Canadian Jan employment data beats expectations, coming in at +66.8K against +5K (F). It is the best 5-month run of hiring in 16 years.

– Istat foresees pronounced slowdown in Italian economic activities, adding to gloom after European Commission had downgraded Italy’s growth to just +0.2% from 1.2% a day before.

– US-China trade talks will take place on Feb 14 and Feb 15 in Beijing with lower level talks starting today. China’s vice premier Liu He is expected to meet with Munchin and Lightizer later in the week for talks. With Trump not meeting Xi before deadline in tariffs talks, market is not expecting a trade deal by 1st of March 2019.

– Report of turmoil in White House with Mulvaney and Kudlow eying exit added to market anxiety. Uncertainty about economic growth, tariffs talks and global economic slowdown has seen the US$ end its strongest week in 6 months.

– UK’s PM May is said to seek legally binding changes to withdrawal agreement in meeting with Ireland’s PM Varadkar, presumably on backstop. With parliament meeting on Feb 14th and with no solution to Brexit withdrawal agreement in sight, Sterling could be heading lower again. There are reports over the weekend of May pushing for more negotiating time to Feb 27th.

Chart Focus Gold

Key Points

1. Sell Gold recommendation

2. Sell Gold at 1311.80. Stop at 1317.50 and target at 1298.30

3. US dollar status as a safe haven is trumping Fed’s dovish tilt.

4. Price is capped at Fibonacci levels with MACD bearish and Stochastic turning down from oversold extreme level.

Fundamental Comments

1. Worries about global economic growth is adding to US$ strength

2. Uncertainty about US-Sino trade talks is shifting capital into safe haven US$

Technical Comments

1. Price is capped between the Fibonacci correction levels of 50% to 62%

2. Stochastic is turning down from overbought extreme point while MACD is still bearish.

Key Levels

Support 1309.70 1302.80 1296.50
Resistance 1315.50 1320.90 1326.20

Technical Overview

USD/JPY – Price is breaking out of a channel and could be heading to test the previous high at 110.45 in the next 24 hours. Both MACD and Stochastic are rising and hinting of a price rally. MACD and 20EMA trend are both bullish as well. A price move below 109.50 would negate our bullish view.

Support 109.80 109.50 109.15
Resistance 110.15 110.60 110.85

EUR/USD – The trend is more bearish than we had expected. The rally could only go as high as 1.1360 on Friday. Today we expect price to be capped at this resistance. We are expecting another decline to 1.1280. MACD is bearish and turning lower while Stochastic could barely move above oversold extreme.

Support 1.1315 1.1285 1.1265
Resistance 1.1355 1.1390 1.1435

GBP/USD – Last Friday’s price range was inside Thursday’s range and we expect this Inside Day chart pattern to last for another 1 or 2 more days. The range to watch out for is Thursday’s high at 1.3000 and the low at 1.2852. MACD remains bearish and Stochastic is weak.

Support 1.2915 1.2890 1.2850
Resistance 1.2950 1.2970 1.3000

AUD/USD – The corrective rally went to a high of 0.7109 this morning. Stochastic and MACD are both rising and we think price can go to 0.7115 to 0.7130 to end the corrective rally. MACD is still bearish and 20EMA is bearish as well. We think 0.7115 would be a good location to get into a short position for one more decline to 0.7030.

Support 0.7060 0.7030 0.7005
Resistance 0.7115 0.7140 0.7180

USD/CAD – Our sell call was not filled as price reached a high of 1.3327 and declined. Price has recovered this morning to 1.3300 from last Friday’s low of 1.3231. We think 1.3300 could be a good opportunity to get into a short position for another decline to 1.3200. A move above 1.3330 would negate our bearish view.

Support 1.3265 1.3230 1.3195
Resistance 1.3290 1.3330 1.3375

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