FX Commentary 25 February 2019

Market Talk

– Trump and Xi said over the weekend that significant progress had been made in trade talk and a deal was possible in the near future. Trump confirmed he would postpone a March 1 deadline for US tariffs hike on Chinese imports and a deal was likely to be signed with China’s President Xi in a summit at Mar-a-Lago the coming weeks if progress continued.

– Positive sentiment arising from trade talks saw gains in Asian equity markets, a weaker JPY and US$ in today’s trading. We are expecting this positive sentiment to spill over to European, US and currency markets. Yuan and Aussie are both stronger against the US$ today

– UK press reported that May is asking for more time and there will be no meaningful vote this week. Opponents are accusing May of deliberately running down the clock and forcing parliament to choose between a deal they had already rejected or face the prospect of a no-deal Brexit. There are increasing reports and expectations of an extension of Brexit.

– Canadian data was slightly better than expected and coupled with increase in crude oil price sent the Canadian dollar against the US$ to 12-day low at 1.3124.

– BOJ’s Kuroda said the central bank would consider loosening monetary policy further if the economy lost momentum. Last week. Japan’s GDP came in below expectations. With an increasing trade talk optimism reducing demand for safe haven JPY and with further easing of monetary policy, JPY is likely to weaken further.

Chart Focus USD/CHF

Key Points

1. Buy USD/CHF recommendation

2. Buy USD/CHF at 0.9980. Stop at 0.9945 and target at 1.0055

3. Optimism of a trade deal and interest rate differential are favouring the US$

4. Price is supported at Fibonacci 62% with MACD and Stochastic hinting of a limited price decline.

Fundamental Comments

1. Trade deal optimism is reducing demand for safe haven CHF

2. Interest rate differential is in US$ favour.

Technical Comments

1. Fibonacci 61.8% is acting as a support for price

2. MACD is showing a potential divergence while Stochastic is into oversold extreme and limiting price decline

Key Levels

Support 0.9980 0.9955 0.9910
Resistance 1.0020 1.0060 1.0095

Technical Overview

USD/JPY – Price moved in a narrow range for a 3rd consecutive day of less than 50 pips. Both momentum indicators are neutral at the moment and not giving any hints. We would recommend waiting for further clue. Watch for breakout at 110.25 or 111.15.

Support 110.55 110.25 109.95
Resistance 110.95 111.15 111.45

EUR/USD – Our short position from 21st Feb is still pending. Since our call, over the past 3 days price has been in a narrow range of 1.1315 to 1.1370. We would suggest closing the position at current price of 1.1345 for a loss of 15 pips as price looks to be in a sideway range. With a better market sentiment, US$ is likely to be weaker and not good for our position.

Support 1.1315 1.1275 1.1235
Resistance 1.1355 1.1390 1.1425

GBP/USD – Price declined more than we expected to 1.2965 but had moved up to 1.3065. Our view remains the same. We are expecting price to test 1.3100 again with 1.3160 also a possibility. MACD is bullish and moving higher while Stochastic is strong but has not yet reached the overbought extreme.

Support 1.3030 1.2995 1.2950
Resistance 1.3075 1.3110 1.3160

XAU/USD – Our view remains the same as last Friday. We have seen a temporary low at 1317.50. We are expecting the 2nd part of the correction to bring price higher to 1335 as the second part of the corrective action. MACD is neutral at the moment. Stochastic is still rising.

Support 1327.65 1322.70 1317.70
Resistance 1331.90 1335.50 1340.65

USD/CAD – Our sell call last Friday was wrong and got stopped out. Price does not seem like it has reached a bottom. We think there could be another decline. If price is capped at 1.3150, there could be a decline to 1.3105 or 1.3070. A move above 1.3205 would negate our bearish view.

Support 1.3125 1.3105 1.3070
Resistance 1.3165 1.3205 1.3240

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