FX Commentary – Fed Dampened Hopes of Further Rate Cut

Market Talk

The Fed cut rates by 25 basis points, matching market expectations but dampened market hopes of further rates cuts later this year. The central bank cited “global development” along with “muted inflation” as reasons for easing monetary conditions.

Powell told reporters in a news conference following the Federal Open Market Committee’s rate decision that the central bank’s rate cut was a “mid cycle adjustment” hinting that further rate cuts later this year are not a sure thing. However Powell did suggest this rate move was not necessarily a one-off.

The dollar index hit a two-year high at 98.46 on Wednesday and Gold prices fell as markets priced in the move and a lack of dovish outlook and further rate cuts failed to cheer Gold’s investors.

Sterling tumbled to a 28-month low this week as investors rushed to factor in the growing possibility of UK leaving the EU without transition trade arrangements in place which is the biggest fear of the financial markets.

Bank of England Monetary Policy Summary is scheduled at 7pm tonight with press conference at 7.30pm.  US ISM Manufacturing PMI is due at 10pm.

Chart Focus USD/JPY

Key Points

1. Buy USD/JPY recommendation

2. Buy USD/JPY at 109.15. Stop at 108.60 and target at 110.15

3. Fed less dovish view and lower uncertainties in the world are not supportive of safe haven JPY

4. Price breaking above an inverse Head and Shoulder chart pattern with bullish MACD.

Fundamental Comment

1. Federal Reserve less dovish stance is supporting US$

2. Lower uncertainties in the world is not support safe haven JPY

Technical Comments

1. Price is breaking out of an inverse Head and Shoulder chart pattern

2. MACD is bullish and rising, hinting of further price upside

Key Levels

Support 109.00 108.60 108.15
Resistance 109.35 109.60 109.95

Technical Overview

USD/SGD – Our buy call from last week has hit its profit target and we are out with a 75 pips profit. Price has hit a high of 1.3765 but the uptrend may not be over as yet. We are likely to see a price pullback to 1.3720 and from there; we are expecting another rally to 1.3800. MACD is still rising and bullish while Stochastic has yet to turn down from overbought extreme.

Support 1.3720 1.3690 1.3665
Resistance 1.3765 1.3790 1.3810

EUR/USD – Our sell call from last Friday was triggered and profit target at 1.1050 was reached last night when hit a low of 1.1033. We gained 105 pips. The decline may not be over as yet. We could see a corrective rally to unwind the oversold condition to 1.1100 and from there another decline down below 1.1030. MACD is bearish and Stochastic is declining.

Support 1.1030 1.0990 1.0960
Resistance 1.1065 1.1100 1.1140

GBP/USD – Price may have made a double bottom with bullish divergence at 1.2100. We could see a corrective rally to 1.2200 to unwind the low MACD and Stochastic reading. However the overall trend looks bearish. 20EMA is pointing lower and its gradient is steep, which is a hint of a strong bearish trend

Support 1.2105 1.2080 1.2030
Resistance 1.2150 1.2185 1.2225

XAU/USD – Price is near to an up trendline starting from 1st July low to the low of 5th July extending out to today. It price were to go below 1404, it is likely to move down to 1385. If it can stay above 1404, it can bounce higher to 1418. MACD has turned bearish and Stochastic is declining. We favour a downside breakout

Support 1404.10 1398.50 1385.60
Resistance 1411.70 1419.30 1427.80

USD/CAD – We had a buy call on this pair on the 24th and on 26th of July, we had raised the stop higher to 1.3105. Price reached a low of 1.3104 last night, taking out our stop for a loss of 15 pips. Price is now higher at 1.3200 and we remain bullish on this pair. MACD is bullish and strong but Stochastic is into overbought extreme and we think there will be a corrective decline to 1.3170 before the uptrend resumes again.

Support 1.3185 1.3150 1.3120
Resistance 1.3215 1.3225 1.3280

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