FX Commentary 19 June 2019

Market Talk

– The dollar held near a two-week high early on Wednesday ahead of the Federal Reserve’s closely-watched policy decision later in the day, supported by a surprisingly dovish European Central Bank and bearish euro zone economic data.

– Focus was on whether the US$ can retain its strength after the Fed’s two-day policy meeting ends later on Wednesday. The Fed is widely expected to stand pat on monetary policy this time but open the door for an interest rate cut at the next meeting in July.

– The Euro dropped along with a decline in German government bond yields, which hit a new record low on Tuesday; after ECB chief Mario Draghi said the bank will need to act in the “absence of improvement” in the outlook.  ZEW Institute data showing that the mood among German investors had deteriorated sharply in June also weighed on the euro.

– Sterling barely budged from near five-month lows after Boris Johnson was confirmed as the front-runner to become Britain’s next prime minister on Tuesday. The British currency had dropped to its weakest since January against the euro and dollar earlier in the session, as investors worry that Johnson could put Britain on a path towards a disruptive no-deal Brexit.

– Trump’s upbeat comments on a meeting with Xi shifted capital into riskier assets. USD/CAD fell to 1.3381 from 1.3430 as oil prices rallied 4% in its best day in months. AUD/USD rebounded from an earlier 5-month low to finish a quarter-cent higher at 0.6876.

Chart Focus GBP/USD

Key Points

1. Sell GBP/USD recommendation

2. Sell GBP/USD at 1.2580. Stop at 1.2630 and target at 1.2470

3. Market are worried the favourite for UK PM could put Britain on a path of a disruptive no-deal Brexit.

4. Price rally is capped by 20EMA and Fibonacci resistance with MACD weak and bearish.

Fundamental Comments

1. Boris Johnson is the favourite for the PM post and this is likely to weigh on Sterling.

2. Interest rate differential is in US$ favour

Technical Comments

1. Price is capped by the 20EMA resistance point and Fibonacci 161.8% point

2. MACD is bearish and could be turning lower.

Key Levels

Support 1.2545 1.2505 1.2475
Resistance 1.2580 1.2620 1.2650

Technical Overview

USD/JPY – Price reached a low of 108.05 but rallied higher to 108.67 on news of Trump and Xi’s meeting at the G20 meeting. Our short position from Monday was stopped out with a 20 pips loss after we brought stop lower to 108.60. Price was unable to hold its gains and has declined to 108.25. Stochastic and MACD are both mixed at the moment. We are expecting range movement again.

Support 108.15 107.80 107.55
Resistance 108.45 108.75 109.15

EUR/USD – Price reached a high of 1.1242 and our sell order was not filled. Price dropped to a low of 1.1182 and could be moving lower to 1.1170. MACD is starting to show divergence and Stochastic is in its oversold extreme. Price could be approaching a low. Watch out for signs of a reversal.

Support 1.1180 1.1165 1.1125
Resistance 1.1205 1.1245 1.1285

USD/CAD – Price touched a high of 1.3432 overnight but had declined to 1.3365 this morning. If the bullish trend were to continue, price needs to hold above 1.3360. If price managed to hold above this support, there is a possibility of a inverse Head and Shoulder chart pattern in the making. This is a bullish pattern for USD/CAD.

Support 1.3360 1.3325 1.3290
Resistance 1.3400 1.3430 1.3470

XAU/USD – Price is likely to consolidate ahead of FOMC meeting today. Price has rallied a lot in both number and time and could be due for a correction. We would recommend watching the support at 1332.80. A break below this support would confirm a correction is in progress.

Support 1338.15 1329.80 1319.50
Resistance 1347.55 1358.85 1365.85

AUD/USD – Price reached a low of 0.6830 and managed to recover higher but is capped by the declining 20EMA at 0.6880. There was a prior divergence warning given by MACD when price reached a low of 0.6830 but MACD is still bearish. Stochastic has reached the overbought extreme despite a small price rally.

Support 0.6855 0.6820 0.6795
Resistance 0.6885 0.6915 0.6945

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