FX Commentary 29 May 2019

Market Talk

– The prospect of a no-deal Brexit re-emerged as a key risk for sterling after May said last week she would step down as leader of the Conservative Party on June 7. Sterling languished just off four-month lows on Tuesday, with the outcome of last week’s European election seen possibly emboldening proponents of a no-deal Brexit as the battle to succeed Prime Minister Theresa May got underway.

– Italian Deputy Prime Minister Matteo Salvini, whose far-right League triumphed in European elections on Sunday, said the European Commission could fine Italy 3 billion euros for breaking EU debt and deficit rules. Another potential battle between Brussels and Rome over Italy’s spending plans is likely to keep the euro under pressure

– Uncertainty over trade tensions between the United States and China are affecting the world’s major economies. The demand for safe-haven assets continues to grow. Yields on 10-Year US Treasury hit 2.27% overnight, their lowest since October 2017.

– The dollar was boosted after the Conference Board’s Consumer Confidence for May rose to 134.1 from 129.2 in April, as data showed that consumers weren’t concerned about the trade war rhetoric impacting their pocket.

– Tonight at 10pm, there is Bank of Canada’s meeting to be followed by announcement of Rate Statement on overnight rate.

Chart Focus EUR/USD

Key Points

1. Trading sell on EUR/USD

2. Sell EUR/USD at 1.1175. Stop at 1.1205 and target at 1.1105

3. Dispute between EC and Italy and interest rate differential are against the Euro

4. A potential flag pattern and MACD turning bearish are signs of a possible price decline.

Fundamental Comments

1. EC and Italy’s dispute on debt and deficit rules is likely to weigh on the Euro

2. Interest rate differential is strongly in US$ favour.

Technical Comments

1. Price could be forming a horizontal flag pattern, which is a hint for a price decline ahead

2. MACD’s faster line is bearish and the signal line is likely to turn bearish soon

Key Levels

Support 1.1140 1.1105 1.1065
Resistance 1.1175 1.1200 1.1235

Technical Overview

USD/JPY – Our sell call was filled yesterday at 109.45. Our view remains unchanged. We are looking at a price decline to 108.40. We would recommend bringing stop lower to 109.65 and keeping profit target at 108.40. MACD is still bearish and turning lower. Stochastic is turning lower without moving into overbought zone, and this could be a bearish sign.

Support 109.15 108.75 108.40
Resistance 109.65 109.95 110.20

AUD/USD – We had a buy call on Aussie that was filled on Monday. Price is still moving sideways and has not made much gain. While our view remains unchanged, we would be cautious and would recommending bringing stop higher to 0.6890. We will keep our profit target at 0.6995.

Support 0.6900 0.6860 0.6825
Resistance 0.6935 0.6965 0.6995

GBP/USD – As price has moved below 1.2645, we are inclined to be bearish as the Fibonacci 62% last line of support has been broken. Price is now likely to decline lower to test the low of 1.2605 again. Stochastic has moved into oversold extreme but MACD is turning bearish. Only a move above 1.2710 would negate our bearish view.

Support 1.2625 1.2605 1.2575
Resistance 1.2650 1.2690 1.2710

XAU/USD – Price went to a low of 1275.85 and has rebounded higher to 1284.35. Stochastic has turned up from oversold extreme and MACD is still bullish at the moment. We are inclined to believe price is still consolidating and the correction off the low may not be over yet. Wait for better trading idea

Support 1280.60 1275.85 1269.50
Resistance 1287.30 1291.40 1298.60

USD/CAD – Price has moved near to the top of a 5 weeks trading range. A breakout would be bullish but inability to move above 1.3520 would mean a decline back to the bottom of the range at 1.3350. Tonight there is BOC meeting and this could have a big impact on this pair directional movement. Watch the top of the range at 1.3520 for directional clue

Support 1.3475 1.3445 1.3400
Resistance 1.3520 1.3565 1.3595

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