FX Commentary 20 February 2019

Market Talk

– Brexit Minister’s Barclays said May will meet with Juncker today with a new legal proposal prepared by Attorney General Cox. He said new proposal would be enough to secure Brexit agreement sending Sterling higher last night. There was no detail about this new proposal which we hope is not alternative arrangements.

– UK’s Hammond said EU will not consider replacing backstop with an alternative arrangement, which EU had stressed in the past that it will not accept even with a time limit. Dutch MPs warned EU to brace for a “no deal” Brexit after alarming meeting in Westminster. Has Sterling priced in too much optimism?

– US resumes talk with China in a bid to resolve trade tariffs conflict in Washington. US was reported to press for stable Yuan but former Fed’s Chairman Yellen cautioned on US request for China to manipulate the Yuan. Stock markets around the world have been pricing in an eventual trade resolution.

– White House’s Hassett said 3.1% growth forecast for 2018 has looked spot on. He is looking for 3% growth in 2019. He does not see a recession in 2019. He said there was progress in ongoing trade talks with China. These comments were good news for the stock markets but bad for safe havens.

– EU Dec construction output was down 0.4% against 0.1% expectation. ECB’s de Guindos said central bank is still analyzing causes of Eurzone slowdown.

Chart Focus NZD/USD

Key Points

1. Trading Sell NZD/USD recommendation

2. Sell NZD/USD at 0.6870. Stop at 0.6905 and target at 0.6785

3. Hassett’s comments of a strong US economy and interest rate differential between NZD/USD is in US favour.

4. Price capped at Fibonacci 127% with a Double Top chart pattern and MACD bearish divergence is a possible sign of a price reversal.

Fundamental Comments

1. White House’s Hassett comments are likely to give US$ strength a boost

2. RBNZ’s stance is unlikely to narrow interest rate differentials with US, which is currently in US favour.

Technical Comments

1. A Double Top chart pattern at Fibonacci 127% point is a hint of a possible price peak.

2. MACD has shown bearish divergence warning of a possible price reversal

Key Levels

Support 0.6855 0.6815 0.6785
Resistance 0.6895 0.6940 0.6970

Technical Overview

USD/JPY – Our stop was not triggered but price is currently near to our stop at 110.95. We will keep our stop and hope for the best. Stochastic is weak and showed a mini divergence. MACD is rising but is weak as well. On the 4-hourly chart, there was a Harami Cross, which is a reversal price pattern. If price is unable to move above 110.95, it could come lower to 110.45.

Support 110.65 110.30 110.00
Resistance 110.95 111.15 111.45

EUR/USD – On the 4-hourly chart, we have seen 4 highs around 1.1355. Price looks like it is having difficulty trying to break above this resistance but the trend is still strong and there are no divergence warnings as yet. All will depend on 1.1355. Above this resistance, we will see price test 1.1490 while inability to surpass this point will bring price back to 1.1235.

Support 1.1320 1.1295 1.1250
Resistance 1.1355 1.1390 1.1435

GBP/USD – Price move above 1.2960 and went to a high of 1.3075. While the trend is bullish, the momentum is into extreme levels. We are likely to see a shallow correction to unwind the momentum extreme. This could provide an opportunity to get into the bullish trend on a dip as well. First support is at 1.3030 and second support is at 1.2990.

Support 1.3030 1.2990 1.2960
Resistance 1.3075 1.3115 1.3160

XAU/USD – Price has a strong break above 1327.60 and went to a high of 1346.55. Trend is strong at the moment as can be seen from the steep 20EMA as well as the prolong stay by Stochastic indicator in the overbought zone. Support is at 1338.90 and the next support is at 1334.80. The latter could be a good level to get into this bullish trend.

Support 1338.90 1334.80 1328.90
Resistance 1346.55 1350.30 1357.35

AUD/USD – Our sell call was stopped out this morning. Price may face resistance at 0.7185 which could force a reversal in price’s direction. MACD is weak and there could be a bearish divergence warning if the price rally is weak. Stochastic is into overbought extreme and could limit price upside. Watch the reaction at 0.7185 for clues.

Support 0.7145 0.7105 0.7070
Resistance 0.7185 0.7220 0.7245

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