FX Commentary 22 July 2019

Market Talk

The U.S. dollar was higher on Friday, even as expectations rose that the Federal Reserve will cut interest rates by half a point at the end of the month. As Trump continued to put pressure on the Fed to cut rates, slamming the central bank via twitter for its “faulty thought process”, heightened Gulf tensions helped bolster the US$ for its safe haven status.

– Iran said on Friday it had captured a British oil tanker in the Strait of Hormuz, claiming that the vessel was “violating international regulations.”  This had led to Gold jumping to a 6-year high and buying of safe haven JPY and CHF on Friday.

– A report over the weekend by China’s official Xinhua news agency suggested some local firms were seeking to buy U.S. farm products, seen as a possible sign of progress between China and the U.S. in settling their trade disputes and leading to a trade deal between the 2 largest economies.

– University of Michigan’s consumer sentiment index was about in line (98.4) with previous (98.2), as Americans became more optimistic about the future with the Fed widely expected to cut rates by at least a quarter points at their July 30-31 meeting to offset uncertainties stemming from Trump’s trade policies and weakening global growth, even though U.S. unemployment is near a 50-year low.

– Euro is likely to be weigh down by uncertainty over whether Italy is heading for an election and monetary policy easing by the European Central Bank at its policy meeting later in the week.Chart Focus NZD/JPY

Chart Focus XAU/USD Gold

Key Points

1. Buy Gold recommendation

2. Buy Gold at 1422.80. Stop at 1406.50 and target at 1452.80

3. Tensions in the Gulf and expectation of US interest rate cut are both supportive of Gold

4. Price pullback to 20EMA with MACD in bullish mode, offers a buying opportunity

Fundamental Comments

1. Tensions in the Middle East is supportive of Gold

2. Expectation of Fed’s easing is supportive of Gold

Technical Comments

1. A price pullback to the 20EMA and Triangle support line offers an opportunity to get into the bullish trend

2. MACD is bullish and Stochastic is still moving higher.

Key Levels

Support 1422.60 1414.45 1405.70
Resistance 1430.10 1441.75 1452.90

Technical Overview

USD/JPY – Price has moved higher to 108 but is currently resisted by a downtrend line starting from 108.99 to 108.34. MACD is still bearish but Stochastic is moving higher. Both momentum indicators are giving mixed signals at the moment. We remain bearish in view and we see price going lower to 107.20 from current level. A move above 108.40 would negate our bearish view.

Support 107.60 107.20 106.75
Resistance 108.10 108.40 108.60

EUR/USD – Price has been moving in a range of 1.1200 to 1.1285 for the past 9 days. There are no signs as yet that price may move out of this range. MACD and Stochastic are both neutral at the moment. We think price is likely to stay in this range until ECB’s policy meeting this coming Thursday.

Support 1.1200 1.1180 1.1160
Resistance 1.1230 1.1250 1.1285

GBP/USD – Price managed to stay above the Fibonacci 50% correction point of the rally from 1.2380 to 1.2560 and this could be a good sign with MACD still bullish and Stochastic still moving higher. If price can stay above 1.2500, there is a chance of a test to 1.2600. Announcement of who will be the next UK PM could have an impact on Sterling.

Support 1.2470 1.2430 1.2380
Resistance 1.2515 1.2563 1.2585

NZD/JPY – Our sell call on NZD/JPY was filled this morning at 72.90 when price reached a high of 73.17. Our view remains unchanged. Keep stop at 73.20 and target at 71.90. Stochastic is starting to turn down but 20EMA is still pointing higher. MACD is still bullish at the moment.

Support 72.95 72.65 72.40
Resistance 73.20 73.60 73.95

EUR/AUD – Last Friday, we had brought stop lower to 1.5985 and target to 1.5880. Price reached a low of 1.5892 on Friday and has bounced up higher to 1.5925 today. There is a bullish divergence from MACD. Stochastic indicator has a similar bullish divergence warning. We would suggest closing out the position at 1.5950 for a 35 pips profit

Support 1.5930 1.5905 1.5880
Resistance 1.5960 1.5990 1.6035

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