FX Commentary 15 February 2019

Market Talk

– Sterling was once again weighed down by continued drama surrounding Brexit. UK Parliament rejected May’s Brexit strategy. UK government is reported to be watering down request for changes to “backstop” in Brexit deal. With less than 6 week to March exit from EU, negative sentiment is starting to weigh down Sterling.

– Germany report zero quarterly GDP growth in the final 3 months of 2018, undercutting an already low 0.1% forecast. Weakness in Eurozone largest economy is weighing on the bloc growth forecast and its currency strength.

– Dismal US Retail Sales data reinforced expectations Fed rates will not raise in 2019. Retail Sales number came in -1.2% against a +0.1% forecast. Two days ago, 2 Fed members spoke about 1 US rate hike in 2019 while a Retuer’s poll of economists expected Fed to hike rates again this year.

– Yesterday, market optimism over US-China getting close to a resolution on trade deal had improved market sentiment across financial markets but a Bloomberg’s report that both countries were still far apart on reform demands sent flows into safe haven again with JPY as the biggest beneficiary

– Risk appetite is likely to sag today with a number of risk events on the horizon. US-China trade talk’s results will be closely watched. Market is also waiting to see if Trump declares a national emergency.

Chart Focus Gold

Key Points

1. Buy Gold recommendation

2. Buy Gold at 1313.40. Stop at 1301.40 and target at 1326.20

3. Dismal US data leading to an anticipated Fed’s rate pause and optimism of a US/China trade deal is weighing on US$

4. Price is supported at Fibonacci 50% support with bullish MACD and rising Stochastic pointing to a price rally.

Fundamental Comments

1. Growing optimism of a US/China trade deal is weighing on safe haven US$

2. Dismal Retail Sales data reinforced the view that Fed will not hike rate in 2019

Technical Comments

1. Price is support at the Fibonacci 50% correction point

2. MACD is turning bullish and moving higher together with Stochastic

Key Levels

Support 1310.60 1303.60 1297.20
Resistance 1315.40 1318.20 1326.20

Technical Overview

USD/JPY – Price was capped just below 111.20 and has started to turn lower. We think price should now be capped at 110.60 and is heading lower to 109.90. Both MACD and Stochastic had bearish divergence when price hit the high at 111.13. A move above 111.40 would negate our bearish view.

Support 110.25 109.90 109.60
Resistance 110.55 110.80 111.15

EUR/USD – Price bearish trend is strong and is currently overriding MACD and Stochastic divergence warnings. Price will need to break 1.1350 in order to negate this bearish trend. We are expecting this bearish trend to continue. Resistance is at 1.1310 and if price is capped at this level, price is likely to test 1.1200 over the next few days.

Support 1.1270 1.1245 1.1215
Resistance 1.1315 1.1350 1.1390

GBP/USD – Price reached a low of 1.2772 overnight. The bearish trend is strong and is overriding divergence warnings from both MACD and Stochastic. We see resistance at 1.2835 and if price is unable to move above this point and 1.2880, price is likely to continue moving lower again next week.

Support 1.2800 1.2770 1.2740
Resistance 1.2840 1.2880 1.2920

USD/CAD – Price reached a high of 1.3340 but there was a divergence in the process. If price is capped at this high it is likely to move down to 1.3195 again. MACD is still bearish and turning down. Stochastic has a bearish crossover and is also moving lower. Only a move above 1.3340 would negate our bearish view.

Support 1.3275 1.3230 1.3195
Resistance 1.3310 1.3340 1.3375

NZD/USD – Our buy order was filled. Our view remains the same as yesterday. If price can stay above 0.6785, it is likely to move higher to 0.6885 and later 0.6930. MACD is bullish and has a bullish crossover which should support a higher price.

Support 0.6810 0.6790 0.6760
Resistance 0.6855 0.6885 0.6905

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