FX Commentary 15 July 2019

Market Talk

– US dollar was steady on Monday in Asia as rising inflation failed to dampen expectations that the Federal Reserve will cut interest rate at its policy meeting at the end of July. Fed’s chairman Powell had hinted of a possible rate cut in a Congress testimony when he told lawmakers that the central bank was concerned about weak inflation and global uncertainties.

– China released its Q2 GDP data this morning and while the data was better than analysts’ expectations, coming in at 6.2%, it showed the Chinese economy’s growth slowing to its weakest pace in 27 years. However Industrial production bounced in June from a 17-year low in the previous month lifting optimism.

– The Aussie managed to trade higher on the better than expected Chinese data which some analysts saw as a sign that moves by the Chinese government aimed at reviving spending in the world’s second largest economy was having some success.

– The British pound set a record 10th week of consecutive losses against the Euro as weak UK economic data, growing possibility of interest rate cuts in the event of a chaotic Brexit and rising risk of a no-deal Brexit weigh on the Sterling.

– Japan is on holiday for today, and there are no major data for tonight. Tomorrow morning Australian Monetary Policy Meeting Minutes is scheduled for release at 9.30am.

Chart Focus USD/JPY

Key Points

1. Trading Buy USD/JPY recommendation

2. Buy USD/JPY at 107.95. Stop at 107.60 and target at 108.50

3. Risk appetite has increased with a better China Industrial Output data and interest rate differential is in US$ favour

4. Price has reached a second bottom with MACD bullish divergence, hinting of a possible bottom.

Fundamental Comments

1. Risk appetite has increased as China Industrial Output was better than expectation, reducing demand for safe haven JPY

2. Interest rate differential is in the US$ favour

Technical Comments

1. Price has reached a second low with Stochastic into oversold extreme

2. MACD has given a bullish divergence warning, hinting of a possible bottom

Key Levels

Support 107.75 107.50 107.15
Resistance 108.20 108.60 108.95

Technical Overview

AUD/USD – Following a good China Industrial Output, price has moved higher and should be moving towards the previous high at 0.7047. While Stochastic is into overbought extreme, MACD is strong and rising. 20EMA is also rising and its gradient steep, hinting of a strong bullish trend. Watch the high at 0.7047 for directional clues.

Support 0.7010 0.6980 0.6960
Resistance 0.7050 0.7080 0.7115

EUR/USD – Our buy recommendation from last Thursday is still pending. Price had dipped lower to 1.1237 on Friday but had recovered to 1.1270. Our view remains unchanged. Bring stop higher to 1.1235 and keep target unchanged at 1.1315. MACD is turning up and hopefully can bring price higher to our target.

Support 1.1260 1.1235 1.1200
Resistance 1.1285 1.1315 1.1345

GBP/USD – Price continues to be capped by resistance at 1.2570 and will need to move above this resistance for price to be bullish again. Stochastic is into overbought extreme and MACD, while bullish is losing momentum. Momentum indicators are showing weakening signs but 20EMA is still bullish and point higher. Watch the reaction at 1.2570.

Support 1.2535 1.2505 1.2485
Resistance 1.2570 1.2610 1.2650

XAU/USD – Our view remains unchanged from last Friday. We think the low is in and price should be heading to 1438 again. Price has not moved much since Friday till now, hovering around 1410. MACD momentum is weakening while Stochastic continues to move higher. A move below 1398 would negate our bullish view.

Support 1408.85 1398.90 1385.65
Resistance 1419.40 1427.20 1438.90

USD/CHF – Our sell call was filled but price has bounced higher again this morning after declining to a low of 0.9831 on Friday. Our view remains unchanged from Friday. There could be a corrective recovery to 0.9865 before a price decline to our target at 0.9815. Lower stop to cost at 0.9895 and profit target at 0.9815. Watch MACD as there could be a potential divergence, hinting of a possible low.

Support 0.9830 0.9805 0.9775
Resistance 0.9860 0.9895 0.9910

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