FX Commentary 12 February 2019

Market Talk

– UK spokesman said meaningful vote on Brexit would not be held this week as May is expected to ask Parliament for more time to hammer out her alternative deal. Meaningful vote is expected to be held at the end of February. May also called on former EU chief to help break the Brexit deadlock.

– UK economy is suffering from Brexit uncertainty. UK Dec Industrial Production, Construction Output and 4Q GDP were all lower than expectation, highlighting weakness in the UK economy.

– ECB’s Centeno said Euro fundamental was still good despite slowdown. Economists still expect ECB to hike rate in 4Q 2019 despite recent slowdown and lower forecasts.

– Focus will be on US-Sino trade talks currently ongoing in Beijing with senior US officials and China’s Liu He to meet on 14th Feb. White House’s advisor Conway said it looked like US-China was getting closer to a deal.

– Another partial government US shutdown is looming after talks between Democrats and Republicans broke down. However, US dollar’s status as a safe haven is trumping Fed’s dovish tilt and worries over another looming US shutdown.

Chart Focus AUD/JPY

Key Points

1. Sell AUD/JPY recommendation

2. Sell AUD/JPY at 78.35. Stop at 78.90 and target at 77.45

3. Australian economic conditions have deteriorated in recent months and RBA’s move towards neutrality is hurting Aussie dollar.

4. Fibonacci resistance point with bearish MACD and Stochastic in overbought extreme is hinting of a reversal

Fundamental Comments

1. RBA’s move to neutral stance in interest rate is hurting Aussie dollar

2. High household debts with falling real estate prices pose a risk to the economy

Technical Comments

1. Fibonacci 38.1% retracement could pose a strong resistance

2. Stochastic is into overbought extreme and MACD is still bearish.

Key Levels

Support 78.10 77.85 77.40
Resistance 78.35 78.65 79.00

Technical Overview

USD/JPY – Price broke out of a channel yesterday and is now trending towards the next resistance at 110.95. However, both MACD and Stochastic are hinting of a possible divergence. We are expecting a corrective decline and do not think it is a reversal of trend.

Support 110.25 109.95 109.55
Resistance 110.65 110.95 111.35

EUR/USD – The trend is still bearish for today. We expect price to be capped at 1.1315 and see a final move to 1.1215 in the next couple of days to end this decline. Bullish divergence is starting to form in MACD and Stochastic indicators, reinforcing our view of a final decline.

Support 1.1265 1.1220 1.1185
Resistance 1.1300 1.1345 1.1380

GBP/USD – The important support lies at 1.2830. A break of this support is likely to call for a test of 1.2760. Trend is bearish. MACD is still bearish but is starting to show divergence. Stochastic is into oversold extreme at the moment. The 20EMA resistance at 1.2890 is likely to cap price advance for a test of 1.2830.

Support 1.2830 1.2800 1.2760
Resistance 1.2890 1.2930 1.2960

XAU/USD – Our sell call was filled at 1311.80. We would recommend bringing stop down to cost and keeping target unchanged. MACD and Stochastic are turning higher which is not a good sign but we think this could be just a corrective rally and not a change of trend.

Support 1306.20 1297.40 1293.50
Resistance 1310.30 1315.50 1323.50

USD/SGD – Price reached a high of 1.3612, forming a potential Triple Top chart pattern. Stochastic and MACD have also formed a triple top in line with price. Stochastic is into overbought extreme and is starting to decline. We think price is likely to decline to 1.3545 support. Fibonacci 50% correction point of the rally at 1.3525 is another possibility.

Support 1.3565 1.3525 1.3495
Resistance 1.3615 1.3655 1.3690

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