FX Commentary 6 June 2019

Market Talk

– The US dollar hovered near 7-week lows on after Fed’s Chairman Powell hinted at the possibility of an interest rate cut in the face of rising risks to trade and US economic growth. A slump in US Treasury yields after a poor ADP payroll data did not help US$.

– Recession fears are sweeping across the world and central banks have in recent weeks cut rates in what could signal the start of a global monetary easing cycle. Australia’s central bank on Tuesday slashed benchmark cash rates to a record low of 1.25% and signaled willingness to go further if the worsening outlook persists. IMF’s Lagarde has moved to assure the market; IMF does not see threat of a global recession.

– The pound recovered on Tuesday but concerns about a disorderly departure from the EU meant gains were minimal, amid promises from U.S. President Donald Trump of a “phenomenal” post-Brexit trade deal.

– European Commission triggered disciplinary process against Italy over its public debt. EU’s Dombrovskis said Italy hasn’t complied with debt criterion and Italy’s growing debt justified the launch of a disciplinary procedure. A confrontation is likely to weigh on the Euro.

– The European Central Bank meets at 7.45pm tonight, with investors looking to see how concerned policy makers are about signs of a downturn in growth. Speculation that the ECB will match Fed dovishness and possibly even announce looser terms for a new cheap lending scheme sent German 10-year government bond yields to a record low of minus 0.2250% and weigh on the Euro.

Chart Focus GBP/USD

Key Points

1. Buy GBP/USD recommendation

2. Buy GBP/USD at 1.2675. Stop at 1.2635 and target at 1.2810

3. Expectation of a Fed cut in interest rate is leading to US Treasury yields falling and this is weighing on the US$

4. Price is supported by 20EMA and MACD is bullish and could be turning higher.

Fundamental Comments

1. Falling US Treasury yields and expectation of a Fed rate cut are weighing on the US$

2. Trump’s promise of a phenomenal post-Brexit deal with US is aiding Sterling.

Technical Comments

1. Price is supported by the 20EMA after possibly making a bottom at 1.2558

2. MACD is bullish and could be turning up again, bringing price higher.

Key Levels

Support 1.2670 1.2640 1.2615
Resistance 1.2710 1.2750 1.2815

Technical Overview

USD/JPY – Price seems to be consolidating at the moment. We are inclined towards the bearish side as an unwinding of Stochastic has only provided a small rally in price. Price was not able to move above the resistance at 108.50. MACD is still bearish and could be turning lower.

Support 108.10 107.80 107.50
Resistance 108.50 108.75 109.00

EUR/USD – Price is at a crucial level. Price is sitting on 20EMA as well as an important support at 1.1213. A break of this support could mean a deeper correction to 1.1105. If price is able to stay above 1.1213, it means the previous high is not the terminal wave and there is likely to be another push higher than 1.1305. MACD is still bullish while Stochastic has given a bearish divergence warning.

Support 1.1215 1.1185 1.1160
Resistance 1.1265 1.1305 1.1325

AUD/USD – Price stayed above 0.6940 and has reached a high of 0.7007. Following the high, there is a price correction down to 0.6955 but MACD is still bullish and we think there could be one more push above 0.7000. A move below 0.6940 would negate this view.

Support 0.6940 0.6900 0.6860
Resistance 0.6980 0.7010 0.7045

XAU/USD – Price may have reached a temporary peak at 1344. There is an Evening Star candlestick reversal pattern and both Stochastic and MACD had given bearish divergence warnings. We are likely to see a correction back to support at 1317 or 1309.30. Wait for the correction to get a long position for Gold’s rally

Support 1328.75 1317.10 1309.30
Resistance 1337.25 1344.85 1355.60

USD/SGD – Our sell call on Tuesday was not filled as price only reached a high of 1.3697. Price has declined to 1.3625 on Wednesday and has reached the Double Top’s price target. MACD has given a bullish divergence warning and we are inclined to think that the correction is over and price is likely to move up again to 1.3730 in the next couple of days. A move below 1.3620 would negate our bullish view.

Support 1.3645 1.3620 1.3590
Resistance 1.3670 1.3700 1.3730

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