FX Commentary 11 April 2019

Market Talk

– US$ slipped on expectations that US interest rates will stay low after minutes of FOMC meeting was released. Milder than expected U.S. inflation data did not help the US$. Data showed U.S. consumer prices increased by the most in 14 months in March but underlying inflation remained benign.

– ECB kept its loose policy stance and warned that threats to global economic growth remained. The ECB has already pushed back its first post-crisis interest rate hike, and ECB’s President Draghi raised the prospect of more support for the struggling euro zone economy if its slowdown persisted.

– Sterling was little changed after European Union members’ leaders agreed to extend the deadline for UK to leave the union to the 31st October 2019, averting a potential crash out of the bloc on 12th April 2019 without a divorce deal.

– Treasury Secretary Mnuchin told CNBC that U.S. and China have agreed to establish enforcement offices that will deal with ongoing matters when a deal is struck. But investors’ risk appetite was generally capped by U.S. threats earlier this week to slap tariffs on goods from the European Union.

– While Sino-US front may be heading to a conclusion, European front is opening up with Trump accusing the EU of being a brutal trading partner with the US. North Korean leader Kim’s remark to deliver a serious blow to those imposing sanctions on North Korea may add to tensions.

Chart Focus USD/SGD

Key Points

1. Buy USD/SGD recommendation

2. Buy USD/SGD at 1.3530. Stop at 1.3490 and target at 1.3600

3. Interest rate differential and increasing trade tension between US and EU are likely to favour the US$

4. A possible A-B-C price pattern with Stochastic warning of a price low is hinting of a price move higher.

Fundamental Comments

1. Interest rate differential is in US$ favour

2. Trade tension between US and EU is likely to drive capital flow into safe haven US$

Technical Comments

1. Price is supported at the Fibonacci 62% point of the 1.3450 to 1.3573 rally, implying a possible A-B-C pattern.

2. Stochastic has a divergence warning with price and is moving higher.

Key Levels

Support 1.3495 1.3450 1.3425
Resistance 1.3540 1.3575 1.3605

Technical Overview

USD/JPY – Price did not move above 111.45 yesterday but continues its decline to a low of 110.83. This could be the low and from here we see another rally to 111.80 and above. However, MACD is still bearish and Stochastic is not strong at the moment. There is still a possibility of another marginal low but a risk reward is not good. We will wait for confirmation of a low by staying aside for the moment.

Support 110.80 110.50 110.05
Resistance 111.15 111.45 111.80

EUR/USD – Price dipped below the neckline on ECB’s news but managed to move above and to a high of 1.1285. We stick to the same view as yesterday. We are looking for 1.1315 in the next 48 hours. Stochastic is moving towards overbought extreme. MACD is bullish but could be giving divergence warning.

Support 1.1250 1.1210 1.1180
Resistance 1.1285 1.1315 1.1345

GBP/USD – Sterling was unable to penetrate its previous day’s high at 1.3120. There was also divergence warning from MACD on the hourly chart. If price does not move above 1.3120, we think it is likely to test the downside again at 1.3000. On the 4-hourly chart, Stochastic is moving towards extreme condition but MACD is flat and neutral at the moment. A move above 1.3120 would negate our bearish view.

Support 1.3080 1.3030 1.2985
Resistance 1.3120 1.3150 1.3195

XAU/USD – Price exceeded our target of 1307.70 when it reached a high of 1310.50. This high was also accompanied by divergence warnings from both MACD and Stochastic. The high was also just above the Fibonacci 62% of the decline from 1324.40 to 1280.80. We think Gold could be heading lower to 1294.40.

Support 1302.60 1294.40 1288.20
Resistance 1310.40 1319.25 1324.40

EUR/JPY – Our order was filled last night when price reached a high of 125.43. The decline to 124.75 was ahead of our profit target. Price has recovered to 125.37. Keep stop at 127.70 and profit target at 124.60. Stochastic is rising but MACD is flat and neutral at the moment. A move above 125.70 would likely bring price to 126.60.

Support 125.00 124.60 124.20
Resistance 125.45 126.15 126.75

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