FX Commentary 21 March 2019

Market Talk

– Federal Reserve forecasts no rate hike in 2019. The central bank also indicated it intends to end the reduction of its massive balance sheet by Sept 2019. Selling of bonds to market is akin to draining liquidity from the market. Fed also trimmed its economic forecast for 2019 from 2.3% to 2.1%

– Sterling slipped after British Prime Minister Theresa May formally requested a short Brexit delay to June 30. French Foreign Minister had warned that without guarantees that a Brexit deal will be passed by Parliament, an extension could be turned down. May is trying to seek a 3rd meaningful vote in order for extension to be granted. Ireland’s PM Varadkar had said backstop and withdrawal agreement cannot be changed.

– We’re not talking about removing [tariffs], we’re talking about leaving them for a substantial period of time because we have to make sure that if we do the deal with China that China lives by the deal,” Trump told reporters. China could find it hard to agree to a trade

– The dollar nursed heavy losses in Asia on Thursday after the Federal Reserve stunned markets by abandoning all plans to raise rates this year and signal its three-year campaign to normalize policy might be at an end. US Dollar index dropped to its lowest level in 6 weeks

– Bank of England’s Monetary Policy Summary is at 8pm tonight.

Chart Focus AUD/USD

Key Points

1. Buy AUD/USD recommendation

2. Buy AUD/USD at 0.7120. Stop at 0.7080 and target at 0.7190

3. Momentum from FOMC and scenario of no rate hikes in 2019 are likely to keep the US$ weak

4. Strong price momentum is likely to push price towards Fibonacci 161.8% target

Fundamental Comments

1. A no hike scenario for 2019 is bad for the US$

2. Momentum from FOMC is likely to continue before the US$ finds it bottom

Technical Comments

1. A strong trend as indicated by MACD and 20EMA

2. Strong momentum and trend are likely to push price higher to 0.7190.

Key Levels

Support 0.7120 0.7080 0.7040
Resistance 0.7170 0.7200 0.7235

Technical Overview

USD/JPY – Price is near to support zone and has exceeded its Fibonacci target at 110.65. MACD is still bearish and moving lower while Stochastic is not into oversold extreme as yet. There is still potential for downside movement to 110.20. Topside should be capped at 111.15.

Support 110.25 109.95 109.50
Resistance 110.70 111.15 111.50

EUR/USD – Our buy call from 18th Mar was closed out yesterday at 1.1390 for a 50 pips profit. Price may continue towards 1.1480 as MACD is still bullish and has not shown any divergence warning as yet. Stochastic is near to overbought zone but 20EMA is indicating a strong trend.

Support 1.1420 1.1390 1.1360
Resistance 1.1455 1.1485 1.1515

GBP/USD – Price reached a low of 1.3145 on an application of a short Brexit extension by PM May. It went to a high of 1.3250 on FOMC announcement but was unable to sustain its gains. We are still bearish on Sterling despite a dovish Fed. Price should be capped at 1.3250 for another test to 1.3145.

Support 1.3185 1.3145 1.3090
Resistance 1.3220 1.3250 1.3290

XAU/USD – Price momentum should bring Gold price higher to 1321.60. MACD is bullish and rising. Stochastic is not into overbought extreme as yet. 20EMA is bullish and pointing higher. We think price should continue towards 1321.60. A decline below 1311 would negate our bullish view.

Support 1311.60 1306.25 1298.55
Resistance 1321.10 1327.20 1332.50

USD/CAD – Our buy call last night was stopped out and we lost 40 pips on this trade. Both MACD and Stochastic are showing divergence warnings and price has a Double Bottom chart pattern. We think a bottom is near at hand. We will wait for confirmation of this pattern with a price movement above the price resistance at 1.3350

Support 1.3275 1.3240 1.3205
Resistance 1.3300 1.3345 1.3370

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