FX Commentary 3 April 2019

Market Talk

– China’s Caixin Service PMI index for March came in at 54.4 which was higher than expectation of 52.3 and better than the previous month of 51.1. Today’s data continues a recent run of better results, helping to ease concerns of China’s economy going into a drastic slowdown.

– Data released on Tuesday showed U.S. durable goods plunged 1.6% surpassing the 1.1% expectation while core durable goods posted a weak 0.1% increase against 0.3% expectation. These had come on the heel of weak retail sales data released on Monday.

– US envoy for Iran said US is on the fast track for zeroing out all purchases of Iran crude. WTI crude oil’s price has hit $62.58 while Brent was at $69.78. Both are new highs for 2019. Crude oil prices are aiding Canadian dollar against the US$.

– UK’s PM May wants a further extension of Article 50 that ends when a Brexit deal is passed and offers a cross-party approach. Labour leader Corbyn has agreed to meet with her. EU’s Barnier had earlier said a strong justification would be needed to agree to a long Brexit delay.

– Month-on-month Aussie retail sales came in at 0.8%, beating the 0.3% forecast. Australian trade balance came in higher than expectation at A$4.8B surplus, beating the A$3.7B forecast. Coupled with good China Service PMI, Aussie has pushed through 0.7100.

Chart Focus EUR/USD

Key Points

1. Buy EUR/USD recommendation

2. Buy EUR/USD at 1.1215. Stop at 1.1180 and target at 1.1310

3. Poor US data is weighing on US$ while optimism in US-China trade talks has dampened demand for safe haven US$

4. Price is breaking out of a Falling Wedge chart pattern with MACD warning of a bottom in the making.

Fundamental Comments

1. US durable goods and retail sales were poor, suggesting a slowdown in US economy.

2. Risk appetite has increased with optimism in US-China trade talks

Technical Comments

1. Price is breaking out of a Falling Wedge chart pattern

2. MACD has given bullish divergence warning of a possible low

Key Levels

Support 1.1215 1.1180 1.1140
Resistance 1.1250 1.1285 1.1315

Technical Overview

USD/JPY – Our view remains the same as yesterday. A break of 111.15 is likely to lead to a test of the next strong resistance at 111.70. Stochastic is into overbought extreme but MACD is still bullish and strong. 20EMA is also rising and its gradient steep, hinting of a strong trend.

Support 111.45 111.15 110.95
Resistance 111.70 111.90 112.15

USD/SGD – Price is breaking down from a mini Double Top chart pattern. The neckline is at 1.3530. The target for this price move is at 1.3480. Both Stochastic and MACD are moving lower. MACD has turned bearish. 20EMA has turned bearish as well. We could see a strong bearish move to 1.3480 or lower in the next 2-3 days.

Support 1.3505 1.3480 1.3450
Resistance 1.3530 1.3570 1.3610

GBP/USD – In the past 3 weeks, price has been contained in a range of 1.2960 to 1.3380, despite the chaos and volatility of Brexit. Price has tested the bottom of this range and has managed to move higher. We think price could be about to test the high side of 1.3270 and 1.3380 in the next 1 week. MACD has turned bullish and is rising.

Support 1.3140 1.3095 1.3060
Resistance 1.3195 1.3260 1.3310

XAU/USD – Price has been capped below 1298.20 for the past 2 days and we think today, the decline could be on its way. Price is currently capped at the 20EMA point of 1293.30. MACD is bearish and could be about to turn down. This could bring price down to 1280.10 or 1276.40. Potential divergence could be forming and hinting that this decline could be the last one.

Support 1285.10 1280.10 1276.40
Resistance 1294.05 1299.80 1306.55

AUD/USD – Our sell call was stopped out this morning at 0.7115 after two Aussie data and China Service PMI came in better than expected. We lost 30 pips in the process. Price is likely to push for a break of the declining trend line at 0.7120. MACD has turned bullish and Stochastic is rising. Both should support Aussie to push higher against the US$.

Support 0.7095 0.7060 0.7025
Resistance 0.7115 0.7130 0.7170

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