FX Commentary 13 May 2019

Market Talk

– Sterling was boosted by UK’s economic data but its gains were capped by doubts that PM May can reach a deal with the opposition party on a cross party deal to leave the European Union. The Office for National Statistics said the U.K. economy shrank 0.1% in March, but grew 0.5% in the first quarter, taking its annual growth rate to 1.8%.

– Canadian April’s employment was up 106.5K, trashing expectation of 11.6K. This biggest one month record job gain, dating back to 1976, helped the Canadian to a high of 1.3380 against the US$. Unemployment was lower at 5.7% against expectation of 5.8%

– Liu He, China’s representative in the trade talk spelled out for the first time the sticking points which were removal of trade tariffs, China’s purchases should match real demand and deal must be equal and dignified for both sides.

– President Donald Trump said conversations with China over trade will continue and his relationship with President Xi Jinping remains strong. Trump noted that the trade talks with China were “candid and constructive. Mnuchin had earlier said no further talks with China were planned.

– The US$ gained against the JPY and the Yuan, as trade tensions were reduced with Trump’s tweet. However, the US$ was weaker against most of its peers, weighed down by concerns of its tariffs war with China. China’s Yuan (offshore USD/CNH) was at a fresh 4-month low at 6.8800.

Chart Focus USD/JPY

Key Points

1. Trading Sell USD/JPY recommendation

2. Sell USD/JPY at 109.90. Stop at 110.30 and target at 109.10

3. Trade tariffs conflict will benefit safe haven JPY and dragged the US economic growth lower

4. Price is capped by a strong resistance with MACD bearish. This is a strong hint of another price decline.

Fundamental Comments

1. Trade tariffs uncertainty will likely lead to risk aversion which will benefit safe haven JPY

2. Trade tariffs war is likely to affect the US economy and this is likely to weigh on USD$

Technical Comments

1. Price is capped by 20EMA and an attempted rally had twice failed to surmount this resistance

2. MACD is bearish and Stochastic recovery looks weak. Both are hinting of another price decline.

Key Levels

Support 109.50 109.05 108.85
Resistance 109.90 110.25 110.65

Technical Overview

AUD/USD – Price could be forming a Descending Triangle and a break of support at 0.6960 would confirm this chart pattern. The target for this chart pattern lies at 0.6870. Stochastic is turning down and MACD is bearish. These are supporting signs of a bearish trend.

Support 0.6960 06940 0.6915
Resistance 0.6990 0.7020 0.7045

EUR/USD – On Friday, we were expecting another rally to test the topside at 1.1265. Price has made marginal high at 1.1253 but it is not clear if this is part of the rally or the rally that completed the up move. MACD is still bullish and we would prefer to stay bullish unless 1.1160 support breaks.

Support 1.1225 1.1185 1.1150
Resistance 1.1265 1.1290 1.1320

GBP/USD – Our sell call on Friday was filled at 1.3045 when price reached a high of 1.30465. Price declined to a low of 1.2993 but has bounced higher this morning to 1.3015. We would recommend bringing stop down to 1.3050 while keeping profit target at 1.2920. MACD is flat and but Stochastic is moving lower.

Support 1.3000 1.2965 1.2925
Resistance 1.3045 1.3080 1.3110

XAU/USD – Price has been caught inside the range of 8th May. The range is from 1291.50 to 1279.30. This may not be a good sign. This could be a hint that the correction may not be over. MACD is still bearish and Stochastic is still moving lower. We would prefer to stay aside and wait for clearer indications.

Support 1280.60 1274.70 1266.20
Resistance 1288.40 1295.70 1304.65

USD/CAD – Our buy call from Thursday was stopped out when a strong Canadian employment data sent price to 1.3380. Price resistance is now at 1.3450 and if this resistance can hold, price is likely to test the low of 1.3375 again in the next couple of days.

Support 1.3415 1.3375 1.3335
Resistance 1.3450 1.3495 1.3535

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