FX Commentary 22 May 2019

Market Talk

– Sterling had sunk to a four-month low of $1.2685 on Tuesday on Brexit worries in early London hours but bounced back after British Prime Minister Theresa May proposed a “new” Brexit deal. Sterling decline could be an indication of the outcome of May’s deal.

– The Australian dollar, sensitive to shifts in risk sentiment, slipped to $0.6873 after RBA’s governor Lowe said interest rates might be cut as soon as June 2019 if labour condition stays poor.

– The dollar hovered near a four-week high on Wednesday, supported by higher U.S. yields and US government temporary 90 days relief for Huawei. US sought to minimize disruption for Huawei’s customers around the world but investors are still worried that the ongoing U.S.-China trade war was intensifying.

– Chinese President Xi Jinping signaled there would be no end to the trade war in the near future. China will start to impose tariffs on 1 June on US$60 billion of imports and US is likely to impose tariffs on another new batch of US$ 300 billion of imports, intensifying the trade war between the world’s 2 largest economies.

– There is UK CPI to watch out for at 4.30pm and FOMC minutes at 2am tomorrow morning.

Chart Focus CAD/JPY

Key Points

1. Trading sell CAD/JPY recommendation

2. Sell CAD/JPY at 82.35. Stop at 82.65 and target at 81.70

3. Risk aversion and a fall in crude oil price are not in favour of Canadian dollar.

4. A Rising Wedge chart reversal pattern and falling Stochastic reading is hinting of a price decline.

Fundamental Comments

1. Risk aversion from ongoing trade spat between US and China is likely to favour JPY

2. Trade tariffs could affect global economy and bring down crude oil price

Technical Comments

1. A possible Rising Wedge chart pattern with price breaking below the lower trend line

2. Stochastic is moving lower and MACD could go below the zero line.

Key Levels

Support 82.10 81.70 81.45
Resistance 82.55 82.95 83.20

Technical Overview

USD/JPY – Price moved to a high of 110.65 overnight and this could be the temporary high for the short term. The overnight high is also the Fibonacci 50% correction point of the decline from 112.40 to 109.01. While MACD is bullish, Stochastic has moved into overbought extreme and price has reached the top of its uptrend channel.

Support 110.20 109.95 109.50
Resistance 110.65 110.95 111.25

EUR/USD – Price surged to a high of 1.1187 following the surge of Sterling. Similar to Sterling, despite the rally, MACD remains bearish and 20EMA remains bearish as well. We remain bearish with a price target of 1.1105, similar to yesterday.

Support 1.1140 1.1105 1.1090
Resistance 1.1170 1.1195 1.1225

GBP/USD – Price reached a high of 1.2810 on news of PM May’s Brexit plan but was unable to sustain its gains. Price is back below 1.27 again. Despite the rally to 1.2810, MACD remains bearish and Stochastic has turned lower again towards the oversold extreme. We remain bearish for 1.2650.

Support 1.2685 1.2655 1.2620
Resistance 1.2730 1.2760 1.2810

XAU/USD – Our view remains unchanged from yesterday. We believe the rally has ended at 1303 and price is likely to test the support and low at 1266 again. While Stochastic is moving higher, price has been declining and this is a sign of a bearish trend. MACD is still bearish. 20EMA point at 1278 will act as a strong resistance for the push to 1266.

Support 1269.40 1266.20 1259.50
Resistance 1275.30 1280.60 1288.60

USD/CHF – Price came close to our sell order yesterday at 1.0120 but only reached a high of 1.0118. The idea is still valid but we would prefer to watch the reaction at 1.0120 as Stochastic is still moving higher and has yet to turn lower. MACD is bullish but the trend is weak at the moment. A move above 1.0160 would negate our bearish view.

Support 1.0095 1.0070 1.0050
Resistance 1.0125 1.0155 1.0190

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