FX Commentary 6 May 2019

Market Talk

– U.S.-China trade tensions escalated on Monday as President Trump tweeted that he would raise tariffs rate on $200 billion of Chinese goods to 25% from current 10%. South China Morning Post reported that China Vice-Premier Liu He would travel to Washington on Thursday for talks after earlier wire reporting of a cancellation of his trip.

– US Non-Farm Payroll was strong; 263K jobs were gained in April, well above 185K expected. Unemployment rate dropped to 3.6% from 3.8%. Wages were a tad below expectations. Data showed a robust US economy with tame inflation but US$ failed to maintain its strength with rate hike hopes dashed.

– Bloomberg reported, citing a person familiar with the matter, that Theresa May is said to accept that European Parliament elections will take place in the UK. This could mean that a cross party Brexit deal could be some way off.

– Asian equity plunged, Crude oil price tumbled, US Treasury yields declined and safe haven JPY and Gold gained as markets moved into a risk off mode after US President Trump threatened to raise tariffs again China.

– Market liquidity and volume are likely to be lower today with UK on holiday. Tomorrow there is RBA’s meeting with Rate Statement announcement scheduled at 12.30pm.

– There will be no Daily FX Commentary tomorrow.

Chart Focus USD/CAD

Key Points

1. Buy USD/CAD recommendation

2. Buy USD/CAD at 1.3460. Stop at 1.3415 and target at 1.3535

3. Tariffs threat and crude oil’s price decline are weighing on the Canadian dollar

4. A possible A-B-C price pattern with MACD and Stochastic turning up is hinting of a price rally

Fundamental Comments

1. Crude oil’s price decline will weigh on Canadian dollar.

2. Tariffs threat by Trump is likely to favour safe haven US$

Technical Comments

1. A possible A-B-C price pattern could be forming with price projection target at 1.3535 or 1.3585

2. MACD is bullish and turning up. Stochastic is also turning up. Both are hinting of a price rally.

Key Levels

Support	1.3455	1.3415	1.3375
Resistance	1.3495	1.3535	1.3575

Technical Overview

USD/JPY – Due to Trump’s tariff threat, this pair gapped down on Monday opening to a low 110.27. A price rally towards the edge of the gap at 111.00 would be a good opportunity to get into a short position for a test of 110.00. MACD is bearish. 20EMA is bearish and its gradient is steep and these are hints of a bearish trend.

Support	110.60	110.25	110.00
Resistance	110.85	111.05	111.35

EUR/USD – Price gapped down on Monday morning but has almost covered this gap. A move above 1.1205 would change the trend to bullish and push the tariffs threat aside. However, failure could result in a decline back to 1.1160. While Stochastic is moving higher towards overbought zone, MACD is still bearish. Wait for better trade idea

Support	1.1160	1.1135	1.1105
Resistance	1.1200	1.1235	1.1265

GBP/JPY – Last Friday’s we had a buy recommendation on this pair. Price dropped to a low of 144.78, filling our order but missing our stop loss. Our profit target was filled at 146.20 late into New York, just before the closing when price reached a high of 146.49. We are out with a 110 pips profit. Price may have turning bearish with tariffs threat but with Stochastic on the low side, it would be better to wait for a rally to get into a short trade.

Support	145.00	144.70	144.25
Resistance	145.50	145.95	146.50

XAU/USD – On Friday, we had highlighted that Gold’s downtrend could have ended as there was a Double Bottom chart pattern in the process of forming. Price is now close to but has not broken above the neckline of the Double Bottom. A move above 1288.40 would be bullish and confirm the low at 1266.20. We would prefer to wait for confirmation of this pattern with a price move above 1288.40

Support	1280.60	1274.70	1266.20
Resistance	1288.40	1295.70	1304.65

AUD/USD – On Friday, we had lowered our stop to 0.7010 and this trade was stop out. We made 30 pips on this trade. Our view remains unchanged and we are still bearish on this pair. With tariff threat, this pair is even more likely to move lower. Only a move above 0.7030 would change our bearish view.