FX Commentary – Tariffs War Is Back

Market Talk

Trump, in a series of tweets, said the U.S. would impose an additional 10% tariff on US$300 billion of Chinese imports to the U.S.  The levy will take effect on Sept 1 and could go up to 25%, saying China had failed to buy large quantities of U.S. agricultural products as promised in previous talks.

– Trump’s comments came after a U.S. delegation met with Chinese trade officials earlier this week in the first in-person trade talks between China and the U.S. since both countries reached a truce. An escalation in trade friction between the world’s two-largest economies threatens to derail global economic growth.

– Gold’s price spiked as investors looked for safety after CBOE’s Volatility Index (VIX), considered the best fear gauge in the market, surged 8.7% higher at 17.57. The Japanese yen hit a more-than-one month high against the dollar and multi-year peaks against Aussie and NZ$ currencies on Friday

– Aussie dollar was the weakest currency on Friday; weigh down by trade friction between the U.S. and China. Aussie is usually a proxy for the Chinese currency, which is restricted and not freely traded.

– U.S Non-Farm Payroll data is scheduled for release tonight at 8.30pm.

Chart Focus EUR/GBP

Key Points

1. Buy EUR/GBP recommendation

2. Buy EUR/GBP at 0.9135. Stop at 0.9085 and target at 0.9230

3. Worries over a no-deal Brexit and a cut in interest rate by BoE are likely to weigh on the Sterling

4. Price has rebounded from 20EMA support with both momentum indicators bullish.

Fundamental Comment

1. Worries over a no-deal Brexit is likely to weigh on Sterling

2. Worries over a BoE rate cut in the event of a no-deal Brexit is likely to weigh on Sterling

Technical Comments

1. Price has rebounded from support around the 20EMA

2. Both MACD and Stochastic are moving higher, hinting of a possible price rally.

Key Levels

Support 0.91250.90850.9050
Resistance 0.91600.9190 0.9230

Technical Overview

USD/JPY – Our buy recommendation was stopped out on news of new trade tariffs on Chinese imports. We lost 55 pips as a result. Price is now near to an important support point at 106.77. MACD has turned bearish and Stochastic is still moving lower with no signs of a reversal as yet. Stay bearish on this pair if 106.77 support point fails to hold.

Support 106.75 106.30106.00
Resistance 107.20 107.60 108.10

EUR/USD – Price is currently capped by the 20EMA around 1.1095. If price is unable to move above this 20EMA resistance, it is likely to test the low at 1.1020 again. MACD is hinting of another price decline; MACD is bearish and both lines are below the zero lines. Only a price move above 1.1165 would negate this bearish view

Support 1.1060 1.1025 1.1000
Resistance 1.1095 1.1125 1.1165

GBP/USD – There are divergence warnings from MACD and Stochastic but price continues to move lower. This is a sign of a strong bearish trend. 20EMA is pointing lower and its gradient is steep, which is a hint of a strong bearish trend. Unless price can move above 1.2250, the risk is to the downside.

Support 1.2070 1.2030 1.1985
Resistance 1.2140 1.2170 1.2250

XAU/USD – Price had a strong rally overnight to 1446.20 but on the 4-hourly chart, there is a bearish Engulfing candlestick pattern. This is a warning of a possible price decline. Price could correct back to 1423 where there is a 20EMA support. MACD is bullish while Stochastic is rising.

Support 1432.25 1424.95 1414.50
Resistance 1445.801452.80 1460.10

USD/CAD – Price was supported by the 20EMA overnight at 1.3185 and has continued to move higher to 1.3225. MACD is bullish and both lines are above zero at the moment. Stochastic is into overbought extreme but is still strong at the moment. We think price is likely to head towards 1.3290

Support 1.3205 1.3180 1.3150
Resistance 1.3245 1.3275 1.3320

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