Market Talk
– Sterling on Friday slipped to a whisker off recent five-month lows against the euro after Boris Johnson moved closer to becoming the next British prime minister, worrying investors that his government would make a no-deal Brexit more likely. He had campaigned for Brexit in the past.
– GBP/USD stayed on course for a weekly gain against the US$ after the Bank of England stuck to its message that interest rates would need to rise, contrasting with the U.S. Federal Reserve which is now expected to cut rates from July. A possible widening of interest rate differentials between these two countries is keeping the pound stronger against the US$
– Gold jumped more than 1.5% on Friday, breaking above $1,400 for the first time since September 2013, as hints of a rate cut from the Federal Reserve took a toll on the greenback and U.S. Treasury yields. U.S. benchmark 10-year Treasury yields dropped below 2% for the first time in more than 2-1/2 years.
– US Service and Manufacturing PMI were both below expectations and just above the 50.0 mark, adding to pressure on the Fed to cut interest rate. Service PMI was 50.7 vs expectation of 51.0 while Manufacturing PMI was 50.1 against an expectation of 50.5.
– Tensions in the Middle East and a meeting between President Donald Trump and Chinese President Xi Jinping at next week’s G-20 summit in Japan help to limit the US$ and safe haven losses. However market analysts had caution that chances of a decisive breakthrough on a trade deal between the two largest economies are low.
Chart Focus USD/JPY
Key Points
1. Sell USD/JPY recommendation
2. Sell USD/JPY at 107.75. Stop at 108.15 and target at 107.05.
3. Tension in Middle East and expectations of US rate cut are likely to weigh on the US$
4. Price is capped by 20EMA and price low with momentum bearish.
Fundamental Comments
1. Tensions in the Middle East is likely to keep safe haven JPY in demand
2. Rising expectations of a US rate cut are likely to weigh on US$
Technical Comments
1. Price is below a recent low and below the 20EMA
2. MACD is still bearish and Stochastic is weak
Key Levels
| Support | 107.25 | 107.05 | 106.55 |
| Resistance | 107.50 | 107.80 | 108.15 |
Technical Overview
EUR/JPY – Our sell call on Friday was stopped out for a loss of 35 pips. Price reached a high of 122.30 and with MACD still rising, could be headed for the next resistance point of 123.00. 20EMA has turned bullish and Stochastic has not yet reached the overbought extreme.
| Support | 122.10 | 121.85 | 121.40 |
| Resistance | 122.50 | 122.75 | 123.15 |
EUR/USD – Price has moved above 1.1345 to a high of 1.1385 and the next resistance is at 1.1415. MACD is rising and strong and could push price higher to 1.1415. Stochastic is into overbought extreme but due to a strong trend, could stay in this extreme. 20EMA is bullish and its gradient is steep, hinting of a strong bullish trend.
| Support | 1.1360 | 1.1315 | 1.1285 |
| Resistance | 1.1390 | 1.1415 | 1.1445 |
GBP/USD – Price broke above a recent high at 1.2766 but there was a bearish divergence warning on the MACD indicator. While MACD is still bullish, it could be hinting of a short term top and a possible price correction. Price could be heading back to the support level at 1.2675.
| Support | 1.2735 | 1.2675 | 1.2630 |
| Resistance | 1.2765 | 1.2795 | 1.2835 |
XAU/USD – Price could be forming a mini Double Top chart pattern. This is a reversal chart pattern and a move below 1382 would be the confirmation and calls for a price decline to 1352. MACD had given a bearish divergence warning and Stochastic has the same divergence signal.
| Support | 1396.80 | 1386.90 | 1377.35 |
| Resistance | 1411.85 | 1423.50 | 1431.10 |
AUD/USD – Price was supported by the 20EMA on Friday and has reached a high of 0.6960 this morning. Stochastic is into the overbought extreme at the moment. MACD is forming a possible bearish divergence warning. Price has moved above the Fibonacci 62% of the decline but we could see a price correction first before another rally.
| Support | 0.6925 | 0.6885 | 0.6855 |
| Resistance | 0.6960 | 0.6985 | 0.7020 |
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