FX Commentary 26 June 2019

Market Talk

– Fed’s Chairman Powell said the U.S. central bank is assessing whether current economic uncertainties call for lower rates, but noted the Fed will take a wait-and-see approach given how rapid recent economic changes have been. Fed’s member Bullard said the U.S. central bank does not need to lower rates by 50 basis points at its next meeting, dampening market’s expectations of an aggressive Fed rate cut.

– Conference Board’s consumer confidence index fell to 121.5 against expectation of 132, falling to its lowest level since September 2017. Conference Board senior director Lynn Franco said escalating trade fears appears to have “shaken consumers’ confidence.”

– Investors look toward developments on the U.S.-China trade front, with both presidents to meet at the G-20 summit later this week. The two leaders are expected to discuss the protracted trade fight between their two countries with Trump ready to raise tariffs on all Chinese goods into the U.S. if the two countries fail to strike a deal.

– Sterling weakened against the dollar after hitting its highest in a month on Tuesday as the risk of a no-deal Brexit weighed on the currency. The favourite to replace Prime Minister Theresa May, Boris Johnson, could take Britain out of the EU with no transitional trading agreements in place, a scenario many warn would hurt the economy

– RBNZ kept it overnight cash rate unchanged at 1.5% but the central bank agreed that a lower OCR may be need to meet its objectives, given further deterioration in the outlook for trading partners’ growth and subdued domestic growth. Market is already anticipating a RBNZ rate cut in August 2019

Chart Focus EUR/AUD

Key Points

1. Sell EUR/AUD recommendation

2. Sell EUR/AUD at 1.6310. Stop at 1.6355 and target at 1.6210

3. Poor Eurozone PMI and interest rate differential are against the Euro

4. A Triangle chart pattern breakout with declining momentum is a hint of further price decline.

Fundamental Comments

1. Recent poor PMI data from Germany and Eurozone are likely to weigh on the Euro

2. Interest rate differential are in favour of the Aussie

Technical Comments

1. Price broke out of a Triangle chart pattern

2. MACD and Stochastic are both declining and hinting of a price decline

Key Levels

Support 1.6265 1.6210 1.6150
Resistance 1.6315 1.6350 1.6395

Technical Overview

USD/JPY – Price’s low on Monday at 106.77 could be a temporary low and with MACD and Stochastic both showing bullish divergence, we think price could be heading towards the strong resistance zone at 107.75 to 107.85. If price could move above this resistance zone, it can head higher to 108.70 but failure to move above 107.85, is likely to result in another decline to 106.77.

Support 107.35 107.00 106.75
Resistance 107.75 108.15 108.45

EUR/USD – Price has declined from a high of 1.1415 to current low of 1.1345. Both Stochastic and MACD are declining but MACD is still bullish. We think this decline could be a corrective decline with support at 1.1340 likely to hold for another test of the high at 1.1415. Should 1.1340 fails to hold, Fibonacci 38% at 1.1320 could provide support.

Support 1.1340 1.1310 1.1270
Resistance 1.1375 1.1415 1.1445

GBP/USD – Price moves above our expectation of 1.2770 to a high of 1.2783 but has since dropped lower to 1.2670. MACD and Stochastic are both declining, both are hinting of further price decline. The next price support is at 1.2615 and a break has bearish implications. We do not think price will decline beyond 1.2615 at the moment.

Support 1.2660 1.2610 1.2565
Resistance 1.2695 1.2735 1.2785

XAU/USD – Price may have reached a temporary high at 1438.90. Stochastic is turning lower and MACD has a bearish crossover and is pushing lower. We think price could be going lower to 1395.60 or 1386.10. We think this is just a corrective decline and the larger trend is still bullish.

Support 1403.40 1395.90 1386.10
Resistance 1413.50 1423.40 1432.20

NZD/USD – Our sell order was not filled as price did not reach our selling point. With RBNZ not cutting rate this morning, we think there is a good chance price can test the resistance zone at 0.6670 but we are not hopefully of a move beyond this point. MACD is starting to show bearish divergence and Stochastic is already in overbought extreme.

Support 0.6635 0.6600 0.6560
Resistance 0.6670 0.6695 0.6720

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