FX Commentary 4 July 2019

Market Talk

– The US dollar slipped to a one-week low against the Japanese yen on Wednesday, undermined by growing concerns over the China-U.S. trade deal, and the possibility of fresh tariff with Europe. U.S. bond yields extended the previous day’s decline, with 10-year yields hitting 2-1/2-year lows below 1.94%, weighing down the US$.

– Expectations have grown that the Fed will embark on its first rate cut in a decade at a policy meeting this month. Markets are assigning a more than a 70% probability of a quarter point rate cut at the next policy meeting which is on 9-10 of July 2019.

– The Euro got a lift on Tuesday after a media report that European Central Bank was in no rush to cut rates at the July meeting. But it later slipped on Wednesday after IMF Managing Director Christine Lagarde, perceived as a policy dove, was nominated as the next ECB president.

– Gold held its rally on a cocktail of positive drivers including weak macroeconomic data, sinking Treasury yields and expectations for fresh easing from the U.S. Federal Reserve. Yesterday’s decline is perceived as a correction of the massive rally on Tuesday.

– The pound was on the defensive again yesterday, with the release of an abysmal construction PMI figure piling pressure on the currency. With Boris Johnson, looking increasing likely to be installed as the next UK’s PM, worries of a no deal Brexit is pressuring the Sterling pound.

Chart Focus AUD/USD

Key Points

1. Buy AUD/USD recommendation

2. Buy AUD/USD at 0.7010. Stop at 0.6970 and target at 0.7080

3. Rising expectation of a US rate cut and trade truce between US and China are both favourable to Aussie dollar

4. MACD is indicating price is in the last leg of a rally with Fibonacci 127% as the rally’s price target.

Fundamental Comments

1. Rising expectation of a US rate cut is weighing the US$

2. Trade truce between the U.S. and China is in favour of the Aussie dollar

Technical Comments

1. Price is supported by its 20EMA and could move to Fibonacci 127% of the 0.6831 to 0.7033 rally.

2. MACD is bullish and is still moving up.

Key Levels

Support 0.7010 0.6985 0.6955
Resistance 0.7050 0.7080 0.7115

Technical Overview

USD/JPY – Price managed to hold the previous day low at 107.53 and managed to climb up to 107.88. MACD is still bearish and moving lower at the moment and Stochastic is weak and barely out of the oversold extreme. Both momentum indicators are hinting of further price decline. We think price is likely to move lower to 107.10.

Support 107.55 107.25 106.80
Resistance 107.90 108.15 108.50

EUR/USD – We had a buy call from Tuesday which we raised the stop loss to 1.1270 yesterday. Stop order was filled and we are out with a 20 pips loss. MACD is still bearish and could be turning lower while Stochastic is weak and unable to move above the oversold extreme.

Support 1.1265 1.1225 1.1180
Resistance 1.1295 1.1325 1.1360

GBP/USD – Price dropped lower to 1.2535 overnight and this may not be the end of the decline as yet. We could see one more drop to 1.2505 to end this decline. Resistance is at 1.2590 and if price failed to move above this resistance, it is likely to drop to 1.2505. Stochastic is weak while MACD is still bearish.

Support 1.2565 1.2535 1.2505
Resistance 1.2590 1.2630 1.2670

XAU/USD – Yesterday, we were looking for a decline to 1410, which was the Fibonacci 50% of the rally from 1381 to 1437. Price dropped to a low of 1411.90 but it seems there will be another decline to 1404 to complete the correction. Stochastic is moving lower while MACD is weak and not showing any signs of a reversal as yet.

Support 1411.95 1404.40 1398.20
Resistance 1418.95 1425.95 1431.16

USD/CHF – Our buy call was filled yesterday at 0.9853. Price was in a tight range yesterday, moving from 0.9833 to 0.9872. MACD is still positive and bullish while Stochastic is starting to rise. 20EMA is still rising and supporting price at the moment. Keep stop at 0.9800 and profit target at 0.9930.

Support 0.9830 0.9800 0.9770
Resistance 0.9865 0.9895 0.9930

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