FX Commentary 20 June 2019

Market Talk

– The Federal Reserve left interest rates unchanged at the end of its monetary policy meeting, in line with market expectation but dropped the word “patient” from its statement and said it would “act as appropriate” to sustain the economy.

– Fed’s  projections showed that eight Fed members out of 17, see a cut this year, which traders took as a further sign the central bank was close to cutting rates. Fed’s median forecast, however, still reflected no cuts this year, but additional easing in 2020.

– Hopes appear to have risen for a trade deal between China and the U.S. The presidents of the world’s two largest economies agreed to revive their troubled talks at a G20 meeting later this month. Trump said talks between the “respective teams” would begin prior to that.

– Gold climbed on the back of US dollar weakness to a 5-year high after the U.S. Federal Reserve signalled interest rate cuts were possible later this year, as it responded to increased economic uncertainty and tepid inflation.

– Bank of Japan announced no changes to monetary policy setting. Bank of England will announce its monetary policy summary at 7pm tonight.

Chart Focus AUD/USD

Key Points

1. Buy AUD/USD recommendation

2. Buy AUD/USD at 0.6885. Stop at 0.6845 and target at 0.6965

3. Fed’s hint of rate cut and resumption of Sino-U.S. trade talk would weigh on the US$

4. An Inverse Head and Shoulder chart pattern which was confirmed by MACD divergence warning of a low.

Fundamental Comments

1. Fed’s hint of rate cut later in the year is weighing on US$

2. Resumption of Sino-U.S trade talk should benefit Aussie dollar

Technical Comments

1. A mini Inverse Head and Shoulder with price breaking out of its neckline confirming the reversal

2. MACD divergence warning of a reversal in price.

Key Levels

Support 0.6885 0.6860 0.6830
Resistance 0.6915 0.6945 0.6990

Technical Overview

USD/JPY – Price broke the support at 107.80 and could be on the way to 107.30. MACD is bearish and is still moving lower, hinting of more downside ahead. Stochastic is also moving lower, confirming MACD’s hint. 20EMA is bearish and is moving lower as well. Only a move above 108.55 would negate this bearish view.

Support 107.45 107.20 106.90
Resistance 107.80 108.15 108.45

EUR/USD – Price has turned around from 1.1180 and with Stochastic rising, price should be moving towards 1.1345. MACD is still bearish despite the strong price rally. We would suggest waiting for further confirmation before getting bullish.

Support 1.1260 1.1230 1.1180
Resistance 1.1290 1.1315 1.1345

GBP/USD – Our sell call was stopped out yesterday for a 50 pips loss. A combination of good UK data and Federal Reserve policy decision has reversed the trend for Sterling. The bullish trend is likely to send price to test the resistance at 1.2760, but with Stochastic in the overbought extreme and MACD also at its extreme, price may find it hard to move above 1.2760.

Support 1.2660 1.2615 1.2570
Resistance 1.2720 1.2760 1.2810

XAU/USD – Price reached a high of 1393.65 on FOMC. Price managed to stay above the closing of 1377.30 and as long as price is able to stay above this support, it is likely to test the 1400 handle. MACD is bullish and still trending higher. Stochastic is still moving higher and is not into the overbought extreme as yet.

Support 1378.40 1364..60 1357.60
Resistance 1386.55 1393.65 1400.00

USD/CAD – Price broke a recent low support at 1.3240 and could be on its way to 1.3155, which is the Fibonacci 127% projection of the decline from the high of 1.3564 to the recent low of 1.3241. Stochastic is into oversold extreme but MACD is bearish and the trend is strong. 20EMA is bearish and its gradient is steep, hinting of a strong bearish trend.

Support 1.3205 1.3170 1.3120
Resistance 1.3240 1.3280 1.3340

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