FX Commentary 24 May 2019

Market Talk

– Safe haven Gold, JPY, and CHF remain strong on Thursday, data out of Japan, Europe and the US was admittedly not that great. Crude oil plunges 5% on weak economic data and moderating Iran tension sending USD/CAD to 1.3501 high.

– Gold looked to the minutes of the U.S. Federal Reserve meeting which indicated that there was no hurry in cutting rates. With interest rate staying put, Gold was a big gainer on Thursday while Treasury yields declined to the lowest level since Oct 2017.

– Sterling weakened again on Thursday as pressure mounted on Prime Minister Theresa May to name a date for her departure after a backlash over her last-ditch plans for Britain’s exit from the EU. Pressure is on Sterling, with investors increasing bets that the pound will suffer further losses as the threat of a disorderly Brexit is seen as increasing.

– ECB minutes showed confidence in an economic recovery in 2H 2019 has dropped. Germany May Ifo business climate index was lower than expectation coming in at 97.9 vs 99.1 expectation. Euro dollar made a new2019 lowbut managed to bounce higher on a weak US PMI data.

– The U.S. dollar retreated after hitting its highest level in two years as US manufacturing activity was lowest in almost in decade in May, suggesting a sharp slowdown in economic growth. The threat of economic fallout from the trade war with China is also weighing on the dollar.

Chart Focus USD/JPY

Key Points

1. Sell USD/JPY recommendation

2. Sell USD/JPY at 109.90. Stop at 110.35 and target at 108.80

3. Widening US-China trade conflict is likely to lead to a falling US equity and move capital into safe haven JPY

4. Price capped at Fibonacci 50% correction point and MACD are both hinting of a price decline

Fundamental Comments

1. Widening trade conflict between the 2 largest economies is likely to move capital into safe haven JPY

2. A falling US equity market is likely to lead to less demand for US$

Technical Comments

1. A price movement was capped at Fibonacci 50% correction point, hinting of a price decline.

2. MACD is bearish and turning lower, hinting of a price decline

Key Levels

Support 109.45 109.05 108.75
Resistance 109.95 110.20 110.65

Technical Overview

AUD/JPY – Price went to a high of 75.80 yesterday and our sell call was not filled. Price has moved lower to 75.40 and should be on its way to 75.10. MACD is still bearish and Stochastic is still moving lower and has not moved into oversold extreme as yet. A move above 75.75 would negate our bearish view.

Support 75.40 75.10 74.80
Resistance 75.75 75.95 76.20

EUR/USD – Price reached a low of 1.1105 last night and has since bounced up above 1.1200. MACD has given a bullish divergence warning on the low made last night. We may have seen the low at 1.1105 and price could be heading higher to 1.1265. MACD is turning bearish and Stochastic is moving towards the overbought extreme.

Support 1.1180 1.1135 1.1105
Resistance 1.1225 1.1265 1.1295

GBP/USD – The trend is bearish but MACD has given a bullish divergence warning last night. Stochastic is moving higher but has yet to reach the overbought zone. Price is currently capped by 20EMA. There is another strong resistance at 1.2710. Above 1.2710 will negate the bearish view. We prefer to be bearish at the moment.

Support 1.2650 1.2620 1.2595
Resistance 1.2685 1.2710 1.2760

XAU/USD – Price has moved above 1280 and yesterday, it went to a high of 1287.15. 20EMA has turned bullish and pointing higher but its gradient is not steep. MACD has turned bullish. Stochastic has turned up and is close to the overbought zone. The first support is at 1278.80 and the resistance is at 1291.40. We think price is likely to move within this range.

Support 1278.80 1270.75 1266.20
Resistance 1287.80 1291.40 1298.20

CAD/JPY – Price dropped lower to 81.15 last night filling our profit order at 81.70. We are out with a 65 pips profit. Stochastic is into oversold extreme but MACD is bearish and its trend is strong. 20EMA is also bearish and its gradient steep. Price may move lower to the previous low at 80.92.

Support 81.15 80.90 80.60
Resistance 81.45 81.70 82.15

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