FX Commentary 13 February 2019

Market Talk

– PM May called off meaningful Brexit vote for this week and pushed it to the end of Feb, as talks with EU would need more time. UK’s spokesman said UK parliament will support May’s deal provided backstop is not permanent but EU is unlikely to allow a time limited backstop. Foreign Minister Hunt believes it is possible to get a Brexit deal by 29th Mar but time is running out soon.

– RBNZ left rate unchanged at 1.75% but did not deliver the dovish comments as with other major central banks. RBNZ expects rate could either go up or down and chances of a rate cut have not increased. Risks and outlook are finely balanced. NZ dollar rallied on the hawkish statement.

– Powell reinforced the view that Fed is on hold. US economy is good with unemployment close to a 50-year low. Powell does not think the probability of recession is elevated. With a strong US JOLTS and news that lawmakers have reached a tentative deal to avert a US partial government shutdown, market risk appetite increased.

– Trump set dead line for trade talks at 1st March. Trump felt that China wanted very much to make a deal and while both leaders have yet to settle on a meeting date or location, he expects to meet Xi to close a deal at some point. This raised market optimism that a trade deal could be reached.

– Risk sentiment improved on hopes of a US-Sino trade deal and no US partial shutdown, ending US$ 8-day uptrend with NZD, AUD and CAD the biggest winners. US equity market and Treasury yields rose.

Chart Focus USD/JPY

Key Points

1. Sell USD/JPY recommendation

2. Sell USD/JPY at 110.60. Stop at 111.05 and target at 109.70

3. Optimism of a trade deal and an improvement in risk sentiment is weighing on the US$

4. Price capped at a Fibonacci 127% expansion point with bearish divergence is a bearish sign

Fundamental Comments

1. An improvement in risk sentiment is weighing on US$

2. Trump hinting of a trade deal at some point in time with China is reducing market risk on trade tariffs

Technical Comments

1. Price capped at Fibonacci 127% is not a good sign

2. Both MACD and Stochastic are showing divergence warnings

Key Levels

Support 110.30 109.95 109.55
Resistance 110.65 110.95 111.35

Technical Overview

AUD/USD – Price’s movement above 0.7115 is a confirmation of 0.7053 as a low and a likely movement over the next 48 hours to test the Fibonacci 50% point at 0.7175. Both momentum oscillators are pointing up and hinting of further upside for price. Resistance at 0.7195 to 0.7205 should not be exceeded or price is likely to move higher to 0.7270.

Support 0.7110 0.7080 0.7055
Resistance 0.7145 0.7175 0.7205

EUR/USD – Price has moved up from 1.1260 low but momentum is close to its extreme level on the 4-hourly chart. If price is unable to move above 1.1350, it is likely to decline back to 1.1260. We do not think the correction is over but rather we see the correction going higher to 1.1390. We would recommend waiting and shorting at 1.1390 with stop at 1.1440.

Support 1.1315 1.1285 1.1255
Resistance 1.1350 1.1390 1.1430

XAU/USD – Yesterday, we recommended bringing stop down to cost at 1311.80. Our stop was hit and we are out. Price looks like it will be doing more correction with the range of 1318.50 to 1307.70. MACD is turning flat and neutral and is not giving any hint. We prefer to stay aside for Gold at the moment and wait for further clues.

Support 1309.20 1302.70 1297.40
Resistance 1314.60 1318.50 1323.50

GBP/USD – Important support at 1.2830 hold yesterday and we are now above 1.2900. We think the correction will continue higher to 1.2960 but we do not think it will cross above 1.3000. MACD is still bearish. Stochastic is moving higher but is coming into overbought extreme which could limit the upside movement for price.

Support 1.2895 1.2865 1.2830
Resistance 1.2925 1.2960 1.3000

USD/CAD – Price reached a low of 1.3195 and we think price is likely to move up to 1.3270. The reaction at 1.3270 to 1.3290 would determine the next direction. Above 1.3290, it would mean the correction is over and price is likely to head towards 1.3375. If price is unable to move above 1.3290, it would mean the correction is not over as yet.

Support 1.3195 1.3170 1.3135
Resistance 1.3230 1.3270 1.3315

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