FX Commentary 26 March 2019

Market Talk

– German IFO Business Climate index improved unexpectedly in March after six consecutive drops, suggesting Europe’s largest economy is likely to pick up in coming months. However, manufacturing sector index fell to a 3-year low and was also the weakest posted since Feb 2016.

– US Treasury’s inverted yield curve persisted for a 2nd day with 10-year Treasury yields lower than 3-months yields. The yields for 10-year Treasury fell to 2.39%, which was below the effective Fed Fund rate of 2.41%. The bond market is now predicting a Federal Reserves’ rate cut in the coming months.

– Canadian Trade Minister’s Freeland said US metal tariffs were completely unacceptable and raise questions for Canada about ratifying USMCA. US’s unfair approach to trade talks could pose a problem with China as well. Trump is imposing tariffs on others but wants others to remove tariffs against US.

– British MPs wrested control of the parliamentary agenda from the government for day in a bid to find a way through the Brexit impasse. On Wednesday, MPs will vote on a range of Brexit options, giving parliament a chance to indicate whether it can agree on a deal with closer ties to the European Union.

– US Consumer Confidence data is expected at 10pm tonight while RBNZ rate statement is at 9am on Wednesday morning.

Chart Focus USD/JPY

Key Points

1. Sell USD/JPY recommendation

2. Sell USD/JPY at 110.30. Stop at 110.75 and target at 109.65

3. Global economic slowdown and yield curve inversion are adding to recession fears and shift to safe haven JPY

4. Price capped at resistance point with MACD bearish and turning down is a hint of a price decline.

Fundamental Comments

1. Risk appetite is reduced as a result of global economic slowdown

2. Yields curve inversion is adding to recession fear.

Technical Comments

1. Price is capped by 20EMA and resistance point

2. MACD is bearish and could be turning down again

Key Levels

Support 109.95 109.65 109.40
Resistance 110.30 110.85 111.15

Technical Overview

EUR/JPY – We are bearish on this pair. Stochastic is rising from oversold extreme but looks weak. MACD is bearish and could be about to do a bearish turn. 20EMA is steep and pointing lower, hinting of a strong bearish trend. We think price should be capped at 124.80 and is likely to test the low at 123.75 again in the next 48 hours.

Support 124.25 123.75 123.45
Resistance 124.80 125.20 125.70

EUR/USD – Price was supported by the Fibonacci 62% correction point at 1.1280 but is capped by the falling 20EMA at 1.1320. MACD is still bearish at the moment and could be turning lower. Stochastic is still rising from oversold extreme. We favour a decline. A break of 1.1280 would be the first indication of a decline to 1.1220.

Support 1.1280 1.1245 1.1225
Resistance 1.1320 1.1355 1.1390

GBP/USD – Our sell call on GBP/USD was stopped out last night for a loss of 60 pips. Price is likely to stay within yesterday’s range as it consolidates. Tomorrow we may see more volatile movement with parliament voting on various Brexit options. MACD is flat and neutral while Stochastic has moved into oversold extreme. Both oscillators are not giving any hints.

Support 1.3150 1.3105 1.3075
Resistance 1.3190 1.3245 1.3285

XAU/USD – Our profit target for Gold was reached last night. We are out of last Friday’s buy call with an $11 profit. On the 4-hourly chart, MACD has a bearish divergence warning, hinting that a top is near at hand. Stochastic is into overbought extreme but price is still above the 20EMA. We will watch for better trend signals.

Support 1317.10 1311.40 1306.50
Resistance 1324.40 1327.20 1332.90

USD/CAD – Price is supported currently at the 20EMA. MACD is still bullish and could be doing a bullish turn. We think these signs could bring price to test the previous high at 1.3465 again within the next 24 hours. If price can move strongly above this resistance, the uptrend could last much longer. However a weak penetration above the resistance could be a possible price high for this pair.

Support 1.3385 1.3350 1.3310
Resistance 1.3420 1.3465 1.3485

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