FX Commentary 21 February 2019

Market Talk

– FOMC Jan’s minutes confirmed the central bank’s patient approach to rate hike and policy makers believed rate pause posed little risk to economy. Fed’s policy bias remains rate hikes and not rate cuts. This was not the dovish minutes that the currency market was expecting, leading to a stronger US$ against its peers.

– Strong Aussie Jan Employment data coming in at +39.1k against 15K expectation lead to a spike in AUD/USD rate but price dropped on news that Dalian port has banned import of Australian coal.

– May met Juncker for Brexit talks yesterday and after the meeting in a joint statement, both sides described the meeting as constructive and would review the progress made again the coming days.

– Sterling gains were capped by 3 Tory lawmakers resigning to join the Independent Group. Impact will be greater if more Tory MPs switched camp leaving May with fewer numbers in parliament to win her Brexit deal. UK official warned that the risk of a no deal Brexit has increased.

– Trade talks continue in Washington with reports of both sides drafting multiple alternative MOUs. If US wanted China to manipulate its currency, the response was not good. Le Ke Qiang stated China will not change it prudent monetary policy and China will not use exchange rate as a tool in trade dispute.

Chart Focus EUR/USD

Key Points

1. Sell on EUR/USD

2. Sell EUR/USD at 1.1330. Stop at 1.1380 and target at 1.1240

3. A better US economy than Euro zone as well as a higher probability in interest rate hike by the Fed than ECB is keeping the US$ strong

4. Price capped at Fibonacci resistance with MACD and Stochastic turning down is a bearish sign

Fundamental Comments

1. Fed is more likely to hike rate than ECB in 2019

2. Economic condition is better in US than in Euro zone

Technical Comments

1. Price capped by Fibonacci 50% of the decline is a sign of a corrective rally

2. Stochastic is turning down and MACD is giving divergence warning is a hint of a potential price top

Key Levels

Support 1.1320 1.1295 1.1240
Resistance 1.1370 1.1405 1.1435

Technical Overview

USD/JPY – Price moved in a 45 pips range yesterday resulting in a flat and neutral MACD. We are likely to see price moves in this range again today until there is a movement outside of this range. We stick to our initial view of an ABC correction with price moving down to 110.00 in the next few days.

Support 110.65 110.30 110.00
Resistance 110.95 111.15 111.45

AUD/USD – Price moved to a high of 0.7205 on the back of a good set of employment data but sunk on news of Dalian banning import of Australian coal. A souring of relationship is bad for Aussie as China is one of its biggest trading partners. Stochastic is falling and has room to fall further while MACD has turned bearish, hinting of a bearish trend.

Support 0.7070 0.7050 0.7015
Resistance 0.7105 0.7135 0.7175

GBP/USD – Price reached a low of 1.3010 yesterday and reached a high of 1.3108 later in the night. We believe this completed the rally and we are looking for a corrective ABC decline over the next few days. The first decline should bring price to 1.3010 again. MACD is still bullish but Stochastic is in its overbought extreme.

Support 1.3015 1.2985 1.2950
Resistance 1.3075 1.3110 1.3160

XAU/USD – Price was capped at 1346.55 and came back lower to our support zone from 1334.40 to 1338.90. MACD is bullish but is still falling. A good level to enter into the bullish trend would be near to the bottom of the support zone at 1334.90. 20EMA support is also nearby at 1333.80.

Support 1334.80 1328.90 1232.75
Resistance 1341.40 1346.60 1353.10

NZD/USD – Our sell call on NZD was filled and we recommend bringing stop loss lower to 0.6860. A break of 0.6815 support point will open the way for 0.6785. MACD bearish trend is strong and histogram is still trending lower. Stochastic is not into oversold extreme and is able to support a lower price.

Support 0.6785 0.6765 0.6720
Resistance 0.6825 0.6855 0.6895

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