FX Commentary 27 June 2019

Market Talk

– The dollar rose on Wednesday as traders scaled back expectations of an aggressive interest rate cut next month after two Federal Reserve officials cooled expectations that the central bank would lower key lending rates by an aggressive half a percentage point at its next policy meeting on July 30-31.

– Trump launched another broadside against the Euro zone and China, accusing of them of engaging in competitive devaluations to “take advantage” of the U.S. His comments are the clearest hint yet that the administration considers itself in a ‘currency war’ with major trading partners, something that analysts fear could deal further blows to global business confidence and trade.

– Traders remain jittery over prospects at the G20 summit starting today in Osaka, Japan, where U.S. President Donald Trump and Chinese President Xi Jinping are due to have a meeting. Earlier Wednesday, Trump told Fox Business Network he would impose additional duties on Chinese imports if he does not clinch a deal with Xi.

– The New Zealand dollar was a big gainer against the greenback. The kiwi rose to $0.6683 after the Reserve Bank of New Zealand left rates unchanged at 1.5% at its policy meeting but signaled another cut was likely in the coming months.

– Sterling edged back towards five-month lows on Wednesday after Boris Johnson told the BBC he was “serious” about leading Britain out of the EU on the Oct. 31 deadline without a deal if EU refused to negotiate a new exit agreement. EU has repeatedly said it is not willing to reopen negotiations.

Chart Focus EUR/USD

Key Points

1. Buy EUR/USD recommendation

2. Buy EUR/USD at 1.1340. Stop at 1.1290 and target at 1.1445

3. Fed is likely to cut rate while the ECB is not likely to cut rate this year.

4. A price support provided by a previous high and 20EMA with bullish MACD could lead to a price rally.

Fundamental Comments

1. Fed is likely to cut rate this year and this could weigh on the US$

2. ECB is not likely to cut rate which could support the Euro

Technical Comments

1. Price is finding support at a previous high point and 20EMA support area.

2. Stochastic is turning around and MACD is still bullish.

Key Levels

Support 1.1340 1.1310 1.1270
Resistance 1.1375 1.1415 1.1445

Technical Overview

USD/JPY – Price had moved above the resistance zone of 107.75-107.85. We think this price rally can continue to 108.60 to 108.80. MACD has turned bullish and is rising which is good for USD/JPY. Stochastic is still rising but has reached the overbought zone. A move below 107.60 would negate our bullish view.

Support 107.80 107.45 107.05
Resistance 108.15 108.45 108.75

AUD/USD – Price could be approaching a high at 0.7000. MACD is starting to show bearish divergence, warning of a possible price high. Stochastic is into overbought extreme and flat. However, 20EMA is still bullish and moving higher. We would prefer to be cautious.

Support 0.6970 0.6940 0.6915
Resistance 0.7000 0.7025 0.7055

GBP/USD – Price has been capped by the 20EMA yesterday and if price continues to be capped at this resistance, it is likely to move lower to test the key support at 1.2635 to 1.2615. A break of this lower limit would be bearish for Sterling, Stochastic is into oversold extreme but MACD could be turning lower. A move above 1.2785 would negate our bearish view.

Support 1.2660 1.2610 1.2565
Resistance 1.2700 1.2735 1.2785

XAU/USD – Our view for Gold remains the same as yesterday. We think price has peaked and could be heading lower to 1395.60 in a correction move, with 1386.10 a possibility as well. MACD had given a bearish divergence warning earlier, warning of a possible price high.

Support 1401.30 1395.60 1386.10
Resistance 1415.95 1421.95 1431.60

EUR/AUD – Our sell call yesterday was not filled as price only reached at high of 1.6295. Price has declined to 1.6225 this morning. The decline may not be over as yet. There could be a corrective rally to 1.6270 and from there; another decline could follow to end this down move. A move above 1.6320 would negate our bearish view.

Support 1.6225 1.6190 1.6150
Resistance 1.6265 1.6295 1.6330

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