FX Commentary 7 June 2019

Market Talk

-ECB kept interest rates unchanged at its meeting and pledged to keep rate at their present levels at least through the first half of 2020. This may not be good news to a market that is expecting the ECB to do more and cut rate but the Euro managed to held gains despite a less dovish than expected ECB’s review.

-The dollar has been hit in recent weeks by the rising expectations for a U.S. rate cut before year-end, as an escalating China-U.S. trade row hurts business confidence and growth. Recent comments from Fed officials have also pointed to an easing in coming months.

-While U.S. and Mexico are getting closer to a resolution over immigration issues that would delay the tariffs threatened by President Donald Trump, the Sino-U.S. front could cap sentiment with Trump saying he would decide on tariffs on another US$300 billion of Chinese good after a G20 meeting late this month.

-Investors are reluctant to take positions on the pound as they await the outcome of the Conservative party leadership contest to succeed Prime Minister Theresa May, who is stepping down. A Eurosceptic winner could increase the risk of a no-deal Brexit, which traders say could send the pound crashing. Median forecasts said that Sterling would trade between $1.15 and $1.20 in the event of a no-deal Brexit.

-Market participants’ immediate focus is on the U.S. Non-Farm payrolls data for May due later tonight at 8.30pm, and early signs are not good with Wednesday’s ADP employment data wide off expectation. Tonight data could tilt the Fed decision on US interest rate.

Chart Focus AUD/USD

Key Points

1. Sell AUD/USD recommendation

2. Sell AUD/USD at 0.6975.Stop at 0.7010 and target at 0.6905

3. A wider interest rate differential and a weak Chinese economy are not in favour of Aussie

4. Price may have reached a peak and momentum indicators are hinting of a decline.

Fundamental Comments

1. After RBA cut interest rate, the interest rate differential between Aussie and US$ has widened

2. A weak Chinese economy and a weak CNH are weighing on the Aussie

Technical Comments

1. Price has reached a Double Bottom target and could be turning down

2. Both MACD and Stochastic are moving lower, hinting of a price decline

Key Levels

Support 0.6940 0.6900 0.6860
Resistance 0.6990 0.7015 0.7045

Technical Overview

USD/JPY – After reaching a low at 107.81, price is consolidating and we are expecting this consolidation to continue. MACD is neutral and flat while Stochastic is near to its overbought extreme zone. The range to watch out is at 108.60 on the topside and 107.80 on the lower end.

Support 108.30 108.05 107.80
Resistance 108.60 109.00 109.30

EUR/USD – Price may have made a Double Top chart pattern last night at 1.1305. The neckline and confirmation lies at 1.1210. MACD has given a bearish divergence warning when price hit the high. Stochastic also has a divergence warning but is in the middle of its range at the moment. Wait for confirmation of Double Top and follow in the direction.

Support 1.1245 1.1205 1.1160
Resistance 1.1280 1.1305 1.1325

GBP/USD – Price reached a high of 1.2741 and could be forming a possible Double Top chart pattern. A move below 1.2670 would confirm the Double Top chart pattern. The target of the decline would be at 1.2600. While Stochastic seems likely to move higher, MACD looks like it will move lower. Wait for confirmation of Double Top and follow in the direction of the reversal.

Support 1.2670 1.2640 1.2600
Resistance 1.2710 1.2745 1.2780

XAU/USD – Our view is the same as yesterday. We think price has reached a temporary top and a correction is in the process of unfolding. The correction could bring price down to 1317 or 1309. MACD is still bullish but there was a divergence earlier. Wait for better price entry.

Support 1328.75 1317.10 1309.30
Resistance 1337.25 1344.85 1355.60

USD/CAD – Price made a low of 1.3345 this morning with MACD giving a bullish divergence warning. There is also a possible Bullish Engulfing candlestick pattern forming on the 4-hourly chart. This could be a reversal and price could be heading to 1.3400 or 1.3430 again. Stochastic is near to the low but MACD is still bearish.

Support 1.3330 1.3290 1.3250
Resistance 1.3385 1.3430 1.3465

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