FX Commentary 18 July 2019

Market Talk

– The US dollar slipped on Thursday, weighed down by lower US yields after a soft U.S. housing market data and IMF’s comment on Wednesday that the US$ was overvalued by 6% to 12%, based on near-term economic fundamentals.

– On Tuesday, Trump said the United States still has a long way to go to conclude a trade deal with China while threatening to slap tariffs on another $325 billion worth of Chinese goods. Concerns send USD/JPY to a 10-day low this morning following overnight decline.

– Sterling stumbled to its lowest since April 2017 at 1.2382 on Wednesday amid growing risks of a no-deal Brexit. Selling abated and Sterling recovered but the recovery may be short-lived with growing fears of a no-deal Brexit.

– The Euro recovered on Wednesday following Tuesday’s loss but single currency’s gains were modest as it was restrained by expectations of easing from the ECB as early as next week. The ECB will hold its monetary policy meeting next week.

– Australian employment data was below forecast at 500 jobs added to the economy in June against expectation of 9000 addition. Unemployment rate was 5.2% against RBA’s forecast of 5%. Aussie dollar moved higher after the data but with market pricing in another RBA cut by November, Aussie is likely to be weighed down by expectation of more easing especially after this morning data.

Chart Focus EUR/AUD

Key Points

1. Sell EUR/AUD recommendation

2. Sell EUR/AUD at 1.5985. Stop at 1.6035 and target at 1.5860

3. ECB easing at its policy meeting next week and interest rate differential are both in Aussie favour

4. A bearish Flag chart pattern with both momentum indicators hinting of price decline is a sign of further price decline.

Fundamental Comments

1. Expectation of ECB easing at its meeting next week is weighing on Euro

2. Interest rate differential is in Aussie favour.

Technical Comments

1. Price may be forming a bearish Flag chart pattern, which is a hint of further price decline

2. Stochastic is turning down. MACD is bearish and turning down as well.

Key Levels

Support 1.5960 1.5905 1.5860
Resistance 1.6000 1.6035 1.6080

Technical Overview

USD/JPY – Yesterday, we had recommended bringing stop higher to 107.95 while keeping profit target at 108.50. Our stop was hit as price declined to 107.63. MACD has turned bearish and Stochastic is turning down. But there is a strong support zone around 107.50-107.60 which could halt price decline. Stay aside for now.

Support 107.50 107.15 106.75
Resistance 107.85 108.10 108.35

EUR/USD – Price bounced before the support at 1.1190 and has reached the resistance point of 1.1245. While Stochastic is rising, MACD is still bearish and could be turning down again. If price is unable to move above 1.1260, it is likely to test the low of 1.1190 again. Above 1.1260, price is likely to test the Fibonacci 62% resistance point at 1.1330.

Support 1.1215 1.1190 1.1160
Resistance 1.1245 1.1285 1.1320

GBP/USD – Following a 27-month low yesterday, price has recovered to 1.2455. While Stochastic is turning up from oversold zone, MACD is still bearish. We prefer to stay bearish. If price is unable to move above 1.2510, price is likely to test the low of 1.2382 again. If price can move above 1.2510, it is likely to move higher to 1.2575.

Support 1.2420 1.2380 1.2330
Resistance 1.2455 1.2485 1.2510

XAU/USD – Price broke above a Triangle chart pattern to a high of 1429.50. Stochastic has reached the overbought extreme but MACD is still bullish. We are expecting price to pull back towards the lower trend line of the Triangle. That location at 1416.30 would be a good location to get into a long position for a movement to 1438.90. A move below 1398 would negate our bullish view.

Support 1416.30 1407.90 1399.80
Resistance 1429.50 1438.90 1452.20

AUD/JPY – Our sell call yesterday was filled at 75.85 when price reached a high of 75.90. Price has declined lower to 75.40 this morning and we would recommend bring stop lower to 75.90 while keeping profit target at 75.15. MACD and Stochastic are both moving lower. MACD could be turning bearish and below the zero line soon.

Support 75.40 75.10 74.85
Resistance 75.65 75.90 76.15

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