FX Commentary 28 February 2019

Market Talk

– Powell, on his second day of testimony to Congress, said that Fed is in a good position to stop run-off of balance sheet this year. Fed will stop shrinking its US$4 trillion balance sheet, accumulated from post financial crisis bond buying. Market has already price in this piece of information with September being the end date when Fed will stop draining liquidity from the market.

– UK’s PM May won a reprieve for 2 weeks to carry out her Brexit deal. MPs backed her promised timetable of 3 rounds of votes from Mar 12th 2019. A no-deal Brexit was not ruled, meaning at the end of a likely extension, should no deal be concluded, UK will still leave EU without a deal.

– US Trade Rep Lighthizer said deal with China would be binding but would not be submitted to Congress, on the eve of tariffs deadline. Lighthizer wanted structural changes and not just purchases alone and China must not engage in competitive currency devaluation.

– Trump meets Kim for a second summit in Vietnam with North Korean leader Kim saying he was willing to give up his country nuclear weapons. Both leaders expressed hope for progress on improving relations and the key issue of denuclearization. However summit ended earlier than scheduled and both leaders failed to issue a joint statement.

– China Feb Manufacturing PMI came out at 49.2 which was lower than expectation of 49.5. This contraction sent AUD/USD lower, despite a good set of Aussie data today.

Chart Focus USD/SGD

Key Points

1. Trading Buy USD/SGD recommendation

2. Buy USD/SGD at 1.3490. Stop at 1.3460 and target at 1.3550

3. A poor Chinese data and an increase in uncertainty following an early end of summit without a joint statement favour the US$

4. Price holding above an important low with momentum indicators hinting of a reversal in trend, favouring the US$ against the SGD.

Fundamental Comments

1. China Feb manufacturing PMI contraction could weigh on the SG dollar.

2. An early end to Trump/Kim summit without a joint statement could spell bad news and ignite flow into safe haven

Technical Comments

1. Both MACD and Stochastic have a bullish divergence warning.

2. Price holds above a support level and has managed to move above its 20EMA

Key Levels

Support 1.3485 1.3440 1.3405
Resistance 1.3515 1.3550 1.3585

Technical Overview

USD/JPY – Price reached a low at 110.40 overnight and has since moved higher to 111.05. Price is still within a range of 110.25 to 111.25. MACD is flat and neutral after showing divergence earlier in the week. Stochastic is moving within its range and not giving much information. However, the early end to Trump/Kim summit without a joint statement could see JPY making a move.

Support 110.50 110.25 109.95
Resistance 110.85 111.25 111.45

EUR/USD – Our sell call was filled yesterday and price almost reached out stop. Our view remains the same. Keep stop at 1.1415. If price move below 1.1370, we think it should be on its way to 1.1315. Stochastic is still moving lower after reversing from overbought extreme. MACD, while bullish is also moving lower and may turn bearish soon.

Support 1.1340 1.1315 1.1290
Resistance 1.1375 1.1405 1.1435

GBP/USD – A possible Brexit deadline extension and the bullish trend send price to a high of 1.3350. While the trend is strong, there is divergence from MACD. Price trend may be bullish but we could see a slight pullback in price before the bullish trend resumes. Support is at 1.3250.

Support 1.3250 1.3180 1.3140
Resistance 1.3315 1.3350 1.3375

XAU/USD – Price has declined overnight to a low of 1316.80. Our first target is met and price could be on its way towards 1310.10. We would recommend bringing stop lower to cost at 1328.70. MACD is bearish and Stochastic is turning lower. Hopefully this combination will bring price lower to our 2nd target.

Support 1316.80 1309.90 1302.70
Resistance 1323.30 1329.80 1335.50

NZD/USD – Price made a mini Double Top chart pattern and has since broke below this neckline. The target for the mini Double Top chart pattern is 0.6825. MACD has turned bearish and 20EMA is also bearish. If price cannot hold above 0.6825, it is likely to go lower to 0.6775.

Support 0.6825 0.6795 0.6775
Resistance 0.6855 0.6885 0.6905

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