FX Commentary 3 July 2019

Market Talk

– Fears of an economic slowdown in Europe were exacerbated after the U.S. government on Monday threatened to impose tariffs on $4 billion of additional euro zone goods in a long-running 15-year dispute over aircraft subsidies. The Euro was helped by a media report that said the ECB was in no rush to cut interest rates at a July policy meeting.

– Gold prices rose on Tuesday, as risk appetite soured on worries over global growth and uncertainties around a Sino-U.S. trade deal. Gold rose to 1437 this morning, back by Trump’s comment that any trade deal with China would need to be “somewhat tilted” in favor of the United States.

– Risk appetite were further dampened by news that Iran had amassed more low-enriched uranium than permitted under its 2015 nuclear deal with world powers. Safe haven JPY and CHF were in demand on Tuesday.

– The Australian dollar, meanwhile, led all gainers on Tuesday after the Reserve Bank of Australia cut interest rates by 25 basis point to a record low of 1%, as expected, but signaled a more balanced economic outlook going forward and would lower rate again only “if needed”.

– Sterling fell to a 9-day low after Bank of England’s Governor Carney’s hint of a possible rate cut. Mark Carney seemed to back away from his upbeat stance as he warned about increasing global trade risks in a speech. His comment sends the pound lower to 1.2601 – the worst level since June 18.

Chart Focus USD/CHF

Key Points

1. Buy USD/CHF recommendation

2. Buy USD/CHF at 0.9853. Stop at 0.9800 and target at 0.9930

3. Worries over global growth and EU-US tariffs may have reached its peak and interest rate differential is supporting US$

4. Price may be in a 4th wave correction and supported by 20EMA with MACD hinting of an impending price rally

Fundamental Comments

1. Worries over global growth and EU-US tariffs may have sent CHF to its peak

2. Interest rate differential is in US$ favour.

Technical Comments

1. 20EMA is supporting price in a possible 4th wave correction

2. MACD is hinting of an impending price rally.

Key Levels

Support 0.9830 0.9810 0.9770
Resistance 0.9865 0.9895 0.9930

Technical Overview

USD/JPY – A triangle did developed but we got its direction wrong. Price broke the triangle lower trend line on worries over global growth and US-Sino trade developments. Price reached a low of 107.53 and a Doji was formed on the 4-hourly chart, hinting of a possible end of the decline. If price can hold above 107.53, price is likely to test higher to 107.90 or 108.15.

Support 107.55 107.25 106.80
Resistance 107.85 108.15 108.50

EUR/USD – Our buy call was filled at 1.1290 but price only went to a high of 1.1320 and has since declined to 1.1285. MACD is still bearish and Stochastic has not been able to move off its oversold zone. Momentum indicators are hinting of a bearish trend ahead. We would recommend getting out of yesterday’s position with a small loss or raise stop to 1.1270.

Support 1.1270 1.1240 1.1205
Resistance 1.1305 1.1345 1.1390

GBP/USD – Price broke the support at 1.2610 and has declined to 1.2585 and we do not think the bottom has been set as yet. There may be a small corrective rally to 1.2615 and from there another decline to 1.2555. MACD is still bearish and declining. Stochastic is in the oversold extreme but has not shown any signs of a turnaround as yet.

Support 1.2575 1.2540 1.2505
Resistance 1.2615 1.2655 1.2700

XAU/USD – Price moved above 1398 and closed the gap at 1408.90 last night. The closing of the gap ended the corrective decline and confirmed the low at 1381.60. Overnight push to 1437.70 could have exhausted the rally and a correction is likely which could bring price lower to Fibonacci 50% at 1410.20.

Support 1419.95 1410.90 1404.40
Resistance 1428.55 1437.70 1452.05

AUD/USD – Our short position from Monday is still pending. We had lowered stop to 0.7010 yesterday while keeping profit target at 0.6935. Price reached a high of 0.6999 yesterday but is moving in a sideways manner and momentum indicators are not conclusive at this moment. We will keep this position for another day and observe the outcome.

Support 0.6985 0.6955 0.6935
Resistance 0.7010 0.7035 0.7060

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