FX Commentary 3 June 2019

Market Talk

– Trump opened another new front on trade tariffs, threatening to impose tariffs and telling companies to leave Mexico to avoid tariffs. Trumps said a US$100B trade deficit with Mexico and illegal immigration had to end.

– In the background, an escalating trade tensions between U.S. and China is brewing with strong rhetoric from China. The impact of a trade war between U.S. and China is also showing up in economic data with both the U.S. and China’s PMI disappointing investors, leading to worries of a global economic slowdown.

– Investors rushed into the perceived safety of JPY, CHF, Gold and US Treasury. US 10-year Treasury yielded 2.13%; a fresh 20-month low. USDJPY reached a low of 108.065 in Asia today on the surprise tariffs threat.

– Gold rose on Monday to its highest level in more than 2 months as heightened Sino-U.S. trade tensions and a surprise tariffs threat on Mexico moved investors into safe haven Gold. A drop in US Treasury yields and a perceived rate cut by the Fed aids Gold as well.

– Sterling suffered its biggest monthly loss against the Euro in 2 years as uncertainty over Brexit and May’s successor sapped appetite and interest for the UK currency. The favourite to succeed PM May had said UK should leave the EU on Oct 31, even without a divorce agreement.

Chart Focus AUD/USD

Key Points

1. Buy AUD/USD recommendation

2. Buy AUD/USD at 0.6945. Stop at 0.6905 and target at 0.7005.

3. While US Treasury yields have sapped US$ strength, Gold price and better than expected Chinese PMI are aiding Aussie

4. Double Bottom breakout and rising momentum are hinting of further price advancement.

Fundamental Comments

1. US Treasury yields has been on the decline to a 20-month low, sapping US$ strength

2. Gold’s rally and a better than expected China’s PMI are aiding Aussie

Technical Comments

1. Breakout of a Double Bottom Chart formation with price target at 0.7005

2. Rising MACD and Stochastic are both hinting of further price rally

Key Levels

Support 0.6935 0.6895 0.6860
Resistance 0.6965 0.7005 0.7045

Technical Overview

USD/JPY – Price had dropped down to 108.065 which is just below the Fibonacci 161.8% of the decline from 110.65 to 109.15. On the 4-hourly chart, there is a potential bullish Engulfing candlestick pattern forming. If confirmed, it is a hint of a price rally to 20EMA and price’s previous low resistance zone around 108.95 to 109.15. Stochastic is turning up from oversold zone but MACD is still bearish.

Support 108.05 107.75 107.50
Resistance 108.50 108.95 109.15

EUR/USD – There is a Shooting Star candlestick pattern on the 4-hourly chart which is a hint of another price decline to 1.1125. Stochastic is turning down from overbought extreme and MACD is also turning lower. MACD is still bearish despite price rally on Friday. A price move above 1.1190 would negate our bearish view.

Support 1.1155 1.1125 1.1105
Resistance 1.1190 1.1215 1.1260

GBP/USD – On Friday, when price reached a low of 1.2558, there was another bullish divergence warning from MACD. However the trend is rather bearish and we are going to be cautious of a reversal in trend. Despite the divergence warning, MACD is still bearish while Stochastic has reached the overbought zone despite a small price rally. This is not a good momentum sign.

Support 1.2615 1.2580 1.2555
Resistance 1.2655 1.2690 1.2745

XAU/USD – We saw a strong rally in price on Friday to 1311 but this morning the rally seems to have run out of strength at 1312.76. A possible short term reversal could be forming with a possible decline to 1300 or 1298.60. MACD is still bullish but Stochastic is into overbought extreme. Wait for a correction to get into the bullish trend.

Support 1304.40 1298.65 1287.90
Resistance 1312.75 1316.60 1324.60

USD/CAD – Price could have reached a high at 1.35635 after breaking out of a consolidation range at 1.3520. MACD and Stochastic have both given bearish divergence warnings. However, MACD is still bullish. An important level to watch is at 1.3480. A move below is likely to hint of another test to 1.3360.

Support 1.3480 1.3435 1.3400
Resistance 1.3520 1.3565 1.3595

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