FX Commentary 22 February 2019

Market Talk

– ECB’s minutes showed near term growth momentum was likely to be weaker than earlier expected. Growth could be below potential for several quarters. Probability of a recession is low but levels of uncertainty are high. The central bank was unclear how long growth dip will last or if it will impact the medium term.

– Pompeo said there was real progress in trade talks with China. Bloomberg reported China will propose to purchase US$30B more in agricultural products on top of pre trade war level. WSJ reported that US wanted China to accept tough new structures.

– Reports of Brexit formal text to be agreed in mid-March sent Sterling higher in the day. UK spokesman said EU-UK Brexit will continue next week with May and Juncker agreeing that work would focus on guarantees relating to backstop that underlines once again its temporary natural.

– Aussie dollar had dropped yesterday on news of Dalian port authority’s ban on import of Australian coal but China foreign ministry has no information about any ban on coal import. Australian Finance Minister Frydenberg denied China has banned Australia import.

– Bank of Canada’s governor Poloz commented that while the plan is to move rates up to neutral over time, the path back to neutral rates is highly uncertain. Poloz warned that monetary policy had its limitations and cannot solve all economic problems sent USD/CAD higher.

Chart Focus USD/CAD

Key Points

1. Buy recommendation USD/CAD

2. Buy USD/CAD at 1.3210. Stop at 1.3150 and target at 1.3305

3. A weaker than expected Canadian housing activity and interest rate differential are against the Canadian dollar

4. Price reversal at Fibonacci 161.8% is hinting of a completion of the decline.

Fundamental Comments

1. BOC governor Poloz’s warning that housing activity has been weaker than expected

2. Interest rate differential is in US$ favour

Technical Comments

1. Price has reached the Fibonacci 161.8% hinting that the decline is completed

2. MACD has turn bullish and is moving higher

Key Levels

Support 1.3210 1.3150 1.3110
Resistance 1.3265 1.3305 1.3330

Technical Overview

USD/JPY – Price moved in a tight range again for yesterday. Momentum is neutral and flat at the moment and not giving any hints. We stick to our ABC pattern possibility and see price going lower to 111.00 if price is capped below 110.95. Above 111.15 would negate our bearish view.

Support 110.65 110.30 110.00
Resistance 110.95 111.15 111.45

EUR/USD – Our sell call was filled yesterday and we are now in a short position. Our view remains unchanged. Price is capped by the 50% Fibonacci correction hinting of a corrective rally. Stochastic is moving lower but MACD is still bullish. Watch the MACD for clue to direction.

Support 1.1320 1.1295 1.1240
Resistance 1.1360 1.1405 1.1435

GBP/USD – Price stayed within the previous day’s range of 1.3010 to 1.3108 and we are expecting price to test the range’s high today with the low tested yesterday. Stochastic is supporting this view. Stochastic is turning up from oversold level. MACD is flat and neutral at the moment.

Support 1.3010 1.2950 1.2895
Resistance 1.3060 1.3110 1.3160

XAU/USD – The correction was much deeper than our expectation but our view remains the same. We view this decline as a correction of a bigger bullish trend. We are expecting a price movement to 1335 as the first part of the correction. Momentum indicators are supporting this view, with Stochastic turning up from oversold zone.

Support 1317.70 1310.10 1301.80
Resistance 1328.90 1335.50 1341.75

NZD/USD – Our sell call from 20th Feb is still pending. Price had dipped below 0.6800 overnight and we would recommend bringing stop lower to 0.6840 and keeping target at 0.6785. Stochastic is moving into oversold extreme and MACD could be showing divergence if the decline is weak. We could be near to a bottom. Watch out for the divergence warning.

Support 0.6785 0.6765 0.6720
Resistance 0.6825 0.6855 0.6895

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