FX Commentary 10 July 2019

Market Talk

– The dollar edged toward a three-week high against a basket of major currencies on Wednesday, as an unwinding of bets on deep U.S. interest rate cuts pushed Treasury yields higher. Expectations for a 50 basis point rate cut at a Fed meeting later this month have evaporated, but investors still expect a 25 basis point rate cut

– Further gains in the greenback depend on the tone Federal Reserve Chairman Jerome Powell strikes during two days of Congressional testimony starting later on Wednesday. Traders will also closely scrutinize the release later on Wednesday of minutes from Federal Open Market Committee’s previous meeting.

– The British pound, which is stuck near a six-month low due to uncertainty over how Britain will avoid a messy no-deal exit from the European Union. Sterling hit to a new six-month low of $1.2439 on Tuesday, with Brexit jitters and growing expectations of a Bank of England rate cut adding to the currency’s weakness.

– A White House statement said a conversation between US and Chinese officials was constructive. China issued a statement confirming the call but South China Morning Post reported that Trump had pressed China to commit to purchasing US agricultural goods at G20 summit but Xi had refused to make specific commitment, signaling a new and tougher stance towards talk talks.

– At 4.30pm today, we have UK GDP data. At 10pm tonight, we have Bank of Canada Monetary Policy report as well as a press conference 15 minutes later. Fed’s chairman Powell testifies before Congress at 10pm as well.

Chart Focus NZD/USD

Key Points

1. Buy NZD/USD recommendation

2. Buy NZD/USD at 0.6600. Stop at 0.6565 and target at 0.6655

3. Expectation of a 25bps rate cut by the Fed and resumption of trade talks are weighing on the US$.

4. A Pin Bar with rising momentum is a hint of a price low and further price rally ahead

Fundamental Comments

1. Expectation of a 25bps cut by the Fed is weighing on the US$

2. Optimism of a resumption of trade talk between US and China are in favour of NZ dollar

Technical Comments

1. A Pin Bar price pattern is hinting of a price low

2. MACD and Stochastic are turning up and hinting of a price rally

Key Levels

Support 0.6595 0.6565 0.6535
Resistance 0.6615 0.6645 0.6675

Technical Overview

USD/JPY – Price managed to stay above 108.70 overnight and we think price is likely to head towards 109.25. MACD is still bullish and moving higher, hinting of further price rally. Stochastic is in overbought extreme and has stayed within this overbought zone, hinting of a strong bullish trend. A move below 108.65 would negate our bullish view.

Support 108.65 108.35 108.05
Resistance 108.95 109.25 109.60

EUR/USD – Price broke support at 1.1205 yesterday but failed to reach the target at 1.1180. Price only reached a low of 1.1192. Resistance, as provided by the 20EMA lies at 1.1225. A move above this resistance is likely to lead price to 1.1270. MACD is still bearish but Stochastic is starting to move higher from oversold extreme.

Support 1.1190 1.1165 1.1130
Resistance 1.1225 1.1245 1.1270

GBP/USD – Price reached a low of 1.2439 overnight but price still looks weak. MACD is still bearish and Stochastic is weak and unable to move out of its oversold extreme. 20EMA is still pointing lower and its gradient steep, which is hinting of a strong bearish trend. Price will need to move above 1.2500 to negate this bearish trend.

Support 1.2420 1.2395 1.2360
Resistance 1.2465 1.2500 1.2535

XAU/USD – Our view remains unchanged from yesterday. We are expecting price to consolidate in the range of 1381 to 1416. MACD continues to be bearish but Stochastic is moving higher. Both indicators are giving mixed signal at the moment. Watch the range boundaries for clues to the next trend direction.

Support 1389.30 1381.60 1373.95
Resistance 1398.35 1407.35 1416.30

AUD/USD – Our view remains unchanged from yesterday. We are expecting price to reach a low of 0.6900 but MACD and Stochastic are looking like it may turn up before price hit our target. We would recommend lifting profit target higher to 0.6910 while lowering stop to 0.6960. Watch the momentum indicators for reversal signals.

Support 0.6900 0.6885 0.6855
Resistance 0.6935 0.6955 0.6995

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