FX Commentary 2 May 2019

Market Talk

– Fed kept interest rate unchanged at its monetary policy meeting overnight but Chairman Jerome Powell said in a news conference that recent low inflationary influences may only be “transitory,” dashing hopes the central bank was at least entertaining the idea of a rate cut because of tame inflation.

– CNBC reported on Wednesday that a U.S.-China trade deal could be announced by next Friday. It was reported that tariffs would be cut to 10% from 25% immediately on US$200 billion of goods and tariffs would be phased out over time.

– US ISM manufacturing index for April came in below expectations at 52.2, and construction spending for March fell 0.9%, more than forecast but ADP Non-farm payroll increased by 275k, easily blowing away analysts’ estimate of 177k.

– Sterling hit a 2-week high on Wednesday despite a stronger US$ after May said her plan to negotiate a customs arrangement with the EU was similar to that of the Labour Party and called for an end to uncertainty. UK newspapers reported that PM May wanted Brexit talks with Labour to conclude by the middle of next week.

– Many countries in Eurozone are reporting PMI around 3.45pm to 4pm and at 7pm, Bank of England concludes its Monetary Policy meeting with press conference scheduled at 7.30pm.

Chart Focus XAU/USD

Key Points

1. Sell Gold recommendation

2. Sell Gold at 1274.50. Stop at 1280.10 and target at 1260.50

3. US Interest rate, low global inflation and an increase in risk appetite are not in Gold favour.

4. Price has broken below a Fibonacci 62% correction support and with MACD bearish and Stochastic declining, are hints of a price decline.

Fundamental Comments

1. US Interest rate is likely to remain at current level which is not to Gold advantage

2. Low inflation and rumour of a Sino-U.S. trade deal conclusion is likely to shift assets away from safe haven Gold

Technical Comments

1. Price has broken below Fibonacci 62% correction point, hinting that current decline is not over as yet.

2. MACD is bearish and declining. Stochastic is not into oversold zone as yet, hinting of more rooms for decline

Key Levels

Support 1266.20 1260.10 1256.70
Resistance 1274.70 1280.10 1288.60

Technical Overview

USD/JPY – Price reached a low of 111.05 and has since recovered higher to 111.65. MACD is still bearish but Stochastic is rising from oversold zone. However both MACD and Stochastic have given divergence warning, hinting of 111.05 as a possible low. We are expecting price to test the resistance at 111.90 for the next move.

Support 111.35 111.05 110.85
Resistance 111.65 111.95 112.25

EUR/USD – Our sell call on Monday was stopped out when price move above 1.1215. Price had a decline overnight on Powell’s comment but managed to stay above the Fibonacci 50% correction point of the rally. MACD is still bullish but Stochastic is declining. We prefer to stay bearish on this pair and are waiting for price confirmation with a move below 1.1165.

Support 1.1165 1.1115 1.1085
Resistance 1.1205 1.1235 1.1265

GBP/USD – Price broke above resistance at 1.2965 on Tuesday and move to a high of 1.3102 on Wednesday. Stochastic is into overbought extreme but MACD is bullish. Both MACD lines are high above zero line, hinting of a strong bullish trend. 20EMA is at 1.3020 and this is likely to determine the next direction of this pair.

Support 1.3020 1.2975 1.2945
Resistance 1.3065 1.3105 1.3135

AUD/USD – Our sell call on Tuesday was filled when price moved to a high of 0.7068. Our view remains unchanged. We are looking at price going down to 0.6985 as a minimum and possibly to 0.6950. We would recommend bringing stop lower to 0.7070 and keeping target unchanged at 0.6950.

Support 0.7000 0.6985 0.6950
Resistance 0.7025 0.7070 0.7120

AUD/JPY – Price reached a low of 77.973 this morning but both MACD and Stochastic are showing divergence warnings of a possible price low. 20EMA resistance lies at 78.45 and a move above this resistance could be the first hint of a possible price reversal. If price is unable to move above 78.65, there is still a possibility of another move below 77.97 to 77.53.

Support 78.15 77.85 77.50
Resistance 78.45 78.90 79.40

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