FX Commentary 4 April 2019

Market Talk

– White House economic advisor Larry Kudlow told reporters on Wednesday that China had acknowledged for the first time that the United States had legitimate gripes about IP theft, forced technology transfer and cyber hacking. Trade negotiations between China and the U.S. resumed yesterday in Washington.

– Optimism of a trade deal bolstered risk appetite with safe haven yen touching a 2-week low. US Treasury yields were lower after investors moved into risker assets and currencies. AUD/USD and AUD/JPY were main beneficiaries.

– ISM Non-manufacturing index dipped to 56.1 last month, lower than expectation of 58.1 and was its softest read since August 2017. ADP employment change was also lower than expectation coming in at 129K against expectation of 184K.

– Sterling gained when UK parliament approved legislation which would force PM May to seek a Brexit delay to prevent a no deal departure on 12th April. PM May sought a Brexit compromise with Labour leader Corbyn in a last ditch effort to end an impasse but talks were inconclusive.

– No major data for today but watch out for ECB Monetary Policy Meeting Accounts at 7.30pm tonight.

Chart Focus USD/CAD

Key Points

1. Buy USD/CAD recommendation

2. Buy USD/CAD at 1.3335. Stop at 1.3290 and target at 1.3415

3. Treasury yields is in favour of US and metal tariffs could lead to a failure to ratify USMCA.

4. Double Bottom chart pattern with momentum oscillators giving divergence warnings are signs of a possible reversal

Fundamental Comments

1. Canadian yield curve has inverted more than the US yield curve implying Canadian economy could be worse than US.

2. Metal tariffs imposed by US could lead to a failure to ratify the USMCA agreement.

Technical Comments

1. A Double Bottom chart pattern could be in the making.

2. MACD and Stochastic have given bullish divergence warnings of a possible low

Key Levels

Support 1.3335 1.3295 1.3250
Resistance 1.3360 1.3395 1.3420

Technical Overview

USD/JPY – Our view remains unchanged from yesterday. We are looking at a test of 111.70 after price broke above 111.15. Last night we saw a high at 111.58. This may be the high with Stochastic turning lower. MACD is still bullish and we think we should see 111.70 today unless MACD turned bearish.

Support 111.45 111.15 110.95
Resistance 111.70 111.90 112.15

EUR/USD – We miss out on our buy call by 1 pip. Price has moved higher and is forming a small triangle chart pattern on the hourly chart. This is a continuation pattern which implies that price is likely to be heading higher. MACD is weak and Stochastic could be turning down. The upside may be limited. Price may be capped at 1.1285.

Support 1.1215 1.1180 1.1140
Resistance 1.1250 1.1285 1.1315

GBP/USD – Price reached a high of almost 1.3200 last night. We think there is still potential to move to 1.3270. MACD is still bullish and Stochastic has come into the overbought extreme. 20EMA is still bullish and rising. A move below 1.3090 would negate our bullish short term view.

Support 1.3140 1.3095 1.3060
Resistance 1.3195 1.3270 1.3310

XAU/USD – The decline we were looking for yesterday did not materialized. Price dropped to a low of 1288.30 and the declining momentum has stalled. Stochastic is showing bullish divergence. MACD has also given a bullish divergence warning. We fear price could be moving higher. 1284.70 may be the low and only a move below this point will negate our bullish view.

Support 1284.70 1280.10 1276.40
Resistance 1294.05 1299.80 1306.55

AUD/USD – Price pushed higher to 0.7120 but has not conclusively moved above this declining trend line. The high of 0.7128 continues to cap price advance. Stochastic has reached the overbought zone and could be turning down. MACD while bullish but is starting to form divergences with price. If price cannot move above 0.7130, it is likely to decline and test 0.7070 again

Support 0.7100 0.7060 0.7025
Resistance 0.7130 0.7150 0.7170

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