FX Commentary 6 March 2019

Market Talk

– Reports that UK government does not expect any breakthrough at a meeting between UK’s AG and EU’s Barnier pushed Sterling lower despite BoE’s Carney comments that market expectation of UK interest rate may not be high enough. Sterling had gained earlier on signs that pro-Brexit lawmakers were willing to compromise with May, raising hopes of May’s Brexit deal passing through parliament.

– Euro dollar continued to sag against its peers ahead of a ECB meeting this coming Thursday on expectation of a delay in rate hike to 2020 instead of late 2019. Recent data has shown a drastic slowdown in Eurozone economic growth.

– News report from Yonhap and 2 US think tanks showed that North Korea rebuilt part of the missile site it had promised to dismantle in the 1st summit with Trump. This has led to a decrease in risk appetite and a strengthening of the JPY against the US$.

– Fear about the progress of trade negotiation between China and US caused a selling of US Treasuries and an increase in bond yields. A decrease in risk appetite and a flight to safety benefited the JPY and US$ and to a certain extent, Gold.

– Australian GDP number was lower than expected, coming in at 0.2% against a low 0.3% expectation. Aussie extended its losses against the US$ and broke a previous strong support and low at 0.7050. RBA’s Lowe said the probabilities of a rate direction remains evenly balanced but it is difficult to imagine rates will rise in 2019. This adds to Aussie woe.

Chart Focus AUD/JPY

Key Points

1. Sell AUD/JPY recommendation

2. Sell AUD/JPY at 78.70. Stop at 79.15 and target at 78.10

3. Weak Aussie GDP data and a reduction in risk are weighing on Aussie.

4. Price broke a chart pattern and MACD is hinting of more price declines.

Fundamental Comments

1. Aussie dollar is weak after a poor GDP number

2. JPY is strong due to a reduction in risk appetite and a flight to safely.

Technical Comments

1. Price broke below a mini Double Top chart pattern

2. MACD is bearish and strong, hinting of more price declines

Key Levels

Support 78.55 78.05 77.85
Resistance 78.90 79.35 79.65

Technical Overview

USD/JPY – Our buy call was not filled yesterday. Price made a new high overnight and has declined to the 20EMA support. We are expecting a bigger correction to the 38% Fibonacci correction point of 111.45. Stochastic is correcting from overbought zone and MACD is also correcting from recent high point. Wait for price dip to get into the bullish long term trend.

Support 111.60 111.25 110.95
Resistance 111.95 112.15 112.45

EUR/USD – Price broke below the Fibonacci 62% of the recent rally and is now likely to move lower to the base of that rally at 1.1235. MACD is strong and bearish at the moment, hinting of more downsides to come. Stochastic is into oversold extreme but given the strong trend, preference should be given to MACD.

Support 1.1285 1.1255 1.1230
Resistance 1.1310 1.1345 1.1380

GBP/USD – Price drop to 1.3100 overnight. While there is a divergence warning on the Stochastic chart, there is no divergence warning from MACD. There is a chance that price may continue lower. Resistance is at 1.3175 and only a move above 1.3240 would negate this bearish scenario

Support 1.3120 1.3095 1.3060
Resistance 1.3170 1.3210 1.3240

XAU/USD – Price made another low at 1281.10 and we think this could be a temporary low and we are likely to see a price recovery to 1294. We view this price rally as a corrective rally and we are expecting another post correction decline to 1278. MACD is strong and bearish.

Support 1281.10 1276.50 1269.30
Resistance 1289.80 1296.70 1304.20

AUD/USD – Price broke below the previous low of 0.7050 this morning on the back of a poor Australian GDP data. First support is at 0.7030 and a break is likely to lead to a test of the 0.7000 handle. MACD is bearish and Stochastic is not into overbought extreme as yet and hinting of more downside for Aussie.

Support 0.7030 0.7000 0.6985
Resistance 0.7065 0.7090 0.7120

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