FX Commentary 4 June 2019

Market Talk

– Demand for safe havens amid an escalating trade tensions and new tariff threats exacerbated worries over a possible global economic slowdown with US Treasury yields falling to its lowest level since September 2017 and Gold prices hitting a 3-month high.

– US 10-year Treasury yield is moving closer to 2.0% and widening the curve inversion with the 3-month, adding to worries of a possible recession ahead. Fed’s member Bullard comments that rate cut may be warranted soon on trade and inflation risks only adds to the downward movement.

– China increased the pressure by accusing Washington of “intimidation and coercion” and dubbed U.S. demands as “exorbitant”. Beijing also opened an investigation into FedEx after Huawei said it diverted to the United States two packages intended for the company’s offices in China. This could escalate tensions.

– Manufacturing PMI around the world showed that manufacturing activity either contracted or stagnated in May. China’s PMI showed modest expansion at 50.2 while Euro zone PMI registered 47.7, its fourth consecutive contraction and only slightly above a 6-year low. US ISM manufacturing as lower at 52.1, which was weakest pace in more than 2.5 years.

– RBA cuts its cash rate by 25bp to 1.25% today after its meeting. The central bank took this decision to support employment growth and provide greater confidence that inflation will be consistent with its medium-term target.

Chart Focus USD/SGD

Key Points

1. Sell USD/SGD recommendation

2. Sell USD/SGD at 1.3710. Stop at 1.3750 and target at 1.3625

3. Decline in US Treasury yields and expectation of a rate cut have eroded the appeal of US$

4. 20EMA and MACD are both hinting of another possible decline in price

Fundamental Comments

1. Decline in US Treasury yields has eroded the appeal of US$

2. Expectation of a Fed’s rate cut has also dampened appeal of the US$

Technical Comments

1. A steep 20EMA is hinting of further price decline

2. MACD is bearish and is hinting of another possible decline in price

Key Levels

Support 1.3660 1.3625 1.3600
Resistance 1.3700 1.3730 1.3775

Technical Overview

USD/JPY – We have another lower low today at 107.84. However this low was accompanied with divergences in MACD and Stochastic. MACD is still bearish and has yet to turn bullish. We continue to remain bearish but are cautious of a possible bottom.

Support 107.75 107.50 107.00
Resistance 108.05 108.45 108.95

EUR/USD – Price has rallied higher to 1.1260. There is a crucial resistance zone at 1.1265 to 1.1280. If price is unable to move above strong resistance zone, it is likely to drop back to 1.1105 again. Stochastic is into overbought extreme. MACD is still bullish. Watch the reaction at resistance zone 1.1265 to 1.1280 for direction clues.

Support 1.1225 1.1195 1.1160
Resistance 1.1265 1.1295 1.1325

GBP/USD – Following the low made last Friday, price has been on a rally to current high of 1.2673. We think the topside could be limited to 1.2710. MACD and Stochastic are starting to show divergence warnings. MACD is still bullish. Wait for 1.2710 to get into a short position with stop above 1.2750.

Support 1.2645 1.2615 1.2580
Resistance 1.2675 1.2710 1.2745

XAU/USD – Gold continued its rally to a high of 1327.80 and Stochastic is deep into overbought extreme. MACD is still bullish. We are expecting a correction in price back to 1306.80. This could be a good buying level for another push up to 1333. A move below 1295 would negate our bullish view.

Support 1316.40 1306.60 1295.15
Resistance 1327.80 1333.20 1346.65

AUD/USD – Our buy call was filled yesterday when price dropped lower to 0.6940. Price reached a high of 0.6992 this morning and following RBA rate cut decision, price has been moving lower to current 0.6965. We would suggest closing out the position if price drops below 0.6940. MACD is still bullish but a cut in interest rate is not good for Aussie.

Support 0.6960 0.6935 0.6895
Resistance 0.6995 0.7015 0.7045

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