FX Commentary 16 May 2019

Market Talk

– The euro gained on Thursday as trade concerns eased on expectations that Trump will delay implementing tariffs on imported cars, preventing a further increase in transatlantic trade tensions. Trump administration officials told Reuters on Wednesday that the president is expected to put off a decision on imposing tariffs on imported cars and parts by up to six months.

– Weaker-than-expected US economic data had stoked fears that the U.S.-China trade war is dragging down global economic growth. U.S. retail sales fell 0.2% in April. Overnight, Chinese industrial production rose by 5.4% in April on a year-over-year basis against an expectation of 6.5, notching the slowest pace of growth since May 2003.

– The Chinese yuan weakened on Wednesday after a release of weaker domestic data. The offshore Yuan hit an intraday low at 6.9177, just shy of its 2019 low at 6.9194 versus the dollar. The Australian dollar, a bellwether for the Chinese economy, was the worst-performing major currency on Wednesday, hitting a fresh four-month low versus the buck.

– Employment in Australia grew strongly for the month of April, rising by 28,400, against the 15,000 expected. However, employment was boosted by part-time employment and unemployment rate increased to 5.2% which is the highest level since August 2018. Aussie dollar was weaker against the US$ as a result.

– Sterling fell sharply on Wednesday on growing expectations that Prime Minister Theresa May will again fail to get her Brexit deal approved and could soon face a leadership challenge. May plans to put forward her thrice-defeated deal for parliament vote and defeat again could oust her.

Chart Focus Gold

Key Points

1. Buy Gold recommendation

2. Buy Gold at 1295.80. Stop at 1290.10 and target at 1306.80

3. Trade tariffs war and risk aversions are both in favour of Gold

4. Price has managed to stay above 20EMA and MACD is turning up.

Fundamental Comments

1. Trade tariffs war between U.S. and China is likely to favour Gold

2. An increase in risk aversion is in favour of Gold

Technical Comments

1. Price managed to stay above the rising 20EMA

2. MACD is still bullish and is looking to turn higher

Key Levels

Support 1294.70 1288.60 1280.60
Resistance 1300.80 1306.90 1315.50

Technical Overview

USD/JPY – Price declined from resistance at 109.70 to a low of 109.14 overnight but MACD is rising and has a bullish divergence warning. However 20EMA is hinting of a bearish trend. It looks like price is likely to stay within a range of 109.00 to 110.05 for now. As trade tensions continue to brew, we would prefer to be bearish on USD/JPY.

Support 109.40 109.00 108.65
Resistance 109.75 110.05 110.50

EUR/USD – Price was on the decline yesterday until Trump’s decision on auto tariffs change EUR/USD’s direction. The rally reached a high of 1.1226 but failed to sustain above the breakout. Price is now below the 20EMA at 1.1212 and we remain bearish. MACD is still bearish although Stochastic is rising.

Support 1.1185 1.1150 1.1115
Resistance 1.1225 1.1265 1.1290

GBP/USD – Price reached at low of 1.2825 yesterday but the decline is not showing any signs of abating. MACD is bearish and is not turning up. Stochastic is into oversold extreme. 20EMA line is bearish and its gradient steep, hinting of a strong bearish trend. We would prefer to wait for higher levels to get into a short position.

Support 1.2825 1.2795 1.2755
Resistance 1.2855 1.2895 1.2925

AUD/USD – Price reached a low of 0.6890 this morning on the back of Aussie employment data. This low was accompanied by a bullish divergence warning from MACD. Stochastic is also turning up from the oversold extreme. We believe there will be a rally, not a bullish trend but a corrective rally to 0.6940 before the downtrend resumes again.

Support 0.6890 0.6860 0.6830
Resistance 0.6920 0.6955 0.6985

USD/SGD – Our buy recommendation at 1.3675 was not filled yesterday as price only reached a low of 1.3676. Our view remains the same. We see price going higher to initial 1.3705 and later to 1.3740. MACD has turned bullish but is rather flat and hinting of a weaker momentum. Stochastic is rising. A move below 1.3660 would negate our bullish view.

Support 1.3660 1.3615 1.3570
Resistance 1.3705 1.3755 1.3790

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