FX Commentary 1 July 2019

Market Talk

– After meeting Chinese President Xi Jinping in Japan on Saturday, U.S. President Donald Trump said he would hold back on new tariffs while keeping current tariffs and that China will buy more farm products from the U.S. China said it was sincere about continuing negotiation but wants respect.

– Safe-haven currencies slid against the dollar on Monday as appetite for risk-sensitive currencies improved after the United States and China agreed to a truce and to restart their troubled trade talks. Conclusion and a trade deal between the two largest economies may prove difficult. Analysts warn that a deal may be elusive as neither side has offered any answers to reconcile their differences and respective positions.

– The yen weakened to 108.28 against the dollar after trading below 107 last week. The Swiss franc fell to 0.9791 franc to the dollar. Gold dropped below $1400. The Aussie dollar gained to $0.7033 following its rise from below $0.696 in the previous trading week.

– Data released on Sunday showed Chinese PMI stood at 49.4 in June, which was unchanged from the previous month but below expectations of 49.5. Another private PMI data released this morning, Caixin/Markit PMI for June, came in at 49.4, which was below expectation of 50.1. It was also the lowest since Jan 2019, sending Aussie below 0.70.

– Data scheduled for tonight includes US ISM data at 10pm. RBA rate policy meeting is 12.30 on Tuesday.

Chart Focus AUD/USD

Key Points

1. Sell AUD/USD recommendation

2. Sell AUD/USD at 0.6995. Stop at 0.7035 and target at 0.6935

3. Poor Chinese PMI is dragging Aussie down after resumption of trade talks had sent it to a 0.7033 high.

4. Bearish engulfing pattern with momentum indicators (MACD & Stochastic) turning down are hinting of a price decline.

Fundamental Comments

1. Poor China PMI is weighing on the Aussie

2. Interest rate differential is also against the Aussie

Technical Comments

1. Price may have reached a rally high at 0.7033 and a correction is due.

2. MACD has given divergence warnings while Stochastic is turning down.

Key Levels

Support 0.6990 0.6960 0.6930
Resistance 0.7005 0.7035 0.7065

Technical Overview

USD/JPY – Our buy recommendation at 107.50 on Friday was not filled as price reached a low of 107.59. Price reached a high of 108.50 this morning which is just below the Fibonacci 127%. MACD is still bullish and rising. Stochastic is also rising and we may see another test to 108.50.

Support 108.25 107.90 107.60
Resistance 108.50 108.80 109.15

EUR/USD – Price has dropped below the previous high turned support level at 1.1345. MACD has turned bearish and Stochastic is heading lower. 20EMA has also turned bearish and is currently pointing lower. Price could be heading to the Fibonacci 50% support of the rally from 1.1180 to the high of 1.1412, which lies at 1.1295. We are bearish unless price moved above 1.1412.

Support 1.1320 1.1295 1.1260
Resistance 1.1345 1.1375 1.1410

GBP/USD – Sterling may have hit a price high at 1.2733 and could be moving lower to 1.2653. MACD is about to turn bearish. Stochastic is not turning up despite reaching its oversold extreme. 20EMA has turned bearish as well. If price is capped at 1.2710, price could be moving lower to 1.2575.

Support 1.2655 1.2620 1.2575
Resistance 1.2705 1.2735 1.2780

XAU/USD – The rally to 1424.55 turned out to be the second part of a correction and we are currently on the third part of a bigger correction. This correction has exceeded our target of 1386 and may move down to 1373.55. MACD is bearish and Stochastic is continuing to move lower and not showing any signs of a reversal as yet.

Support 1382.10 1373.55 1368.25
Resistance 1389.90 1398.40 1407.80

USD/CHF – Price has moved higher above 0.9813 and could be heading to the Fibonacci 161.8% of the rally from 0.9695 to 0.9813, which lies at 0.9885. MACD has turned bullish and Stochastic is moving higher which confirm our view of a move to 0.9885. A move below 09740 would negate our bullish short term view.

Support 0.9810 0.9770 0.9735
Resistance 0.9845 0.9885 0.9925

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