FX Commentary – Fallout From Tariffs War

Market Talk

Fallout from the U.S.-China trade dispute saw investors seek cover in perceived safe-haven JPY, CHF and gold. The Japanese currency rose to a seven-month peak, while Gold breached a 6-year high achieved on 19th of July, reaching a high of 1456 this morning.

China on Friday vowed to fight back against U.S. President Trump’s decision to slap 10% tariffs on the remaining $300 billion in Chinese imports.  Any retaliation is likely to worsen trade relationship between the 2 largest economies in the world, sending the offshore China’s Yuan to a historic low at beyond 7.0 this morning and Aussie near to its 2019’s low.

Tension in the Middle East is likely to weigh on sentiment with Iran’s seizure of a foreign tanker on Sunday and its Foreign Minister Javad Zarif announcing that Tehran would make a third move to roll back commitments to the 2015 nuclear deal signed under the Obama administration.

On Friday, the closely-watched U.S. NFP data showed nonfarm payrolls increased by 164,000 jobs in July, fewer than the prior month, and wages increased modestly, increasing  expectations that the Fed might deliver another interest rate cut in September after it delivered its first rate reduction in more than a decade at the end of July.

China’s Caixin Services Purchasing Manager’s Index (PMI) for July 2019 came in at 51.6 against June’s reading of 52.0. July’s reading was at a 5-month low, heightening the slowdown in China’s economy as a result of the ongoing trade tariffs dispute between the U.S.  Tonight, U.S. Non-manufacturing PMI is scheduled at 10pm.

Chart Focus EUR/USD

Key Points

1. Sell EUR/USD recommendation

2. Sell EUR/USD at 1.1145. Stop at 1.1175 and target at 1.1075

3. Interest rate differential and GDP growth rate are both in the US$ favour

4. Price is at a resistance zone with momentum indicators hinting of a bearish trend

Fundamental Comment

1. Interest rate differential is in US$ favour

2. GDP growth rate is in US favour

Technical Comments

1. A strong resistance zone at 1.1145 to 1.1160 is likely to provide a strong barrier

2. MACD is bearish and Stochastic is near to overbought extreme.

Key Levels

Support 1.11051.10751.1040
Resistance 1.11401.11651.1195

Technical Overview

USD/JPY – Trend is still bearish for this pair, with trade tariffs dispute, tension in the Middle East keeping safe haven JPY strong. Price has reached the Fibonacci 161.8% of the rally from 107.25 to 109.31 but a break of this support could lead to a decline to 105.10. MACD is bearish and Stochastic is oversold but there are no indications of a reversal by both indicators

Support 105.75 105.35105.10
Resistance 106.15 106.80 106.95

AUD/USD – Price reached a low of 0.6746 this morning on the back of a weaker China Caixin PMI data. Stochastic is starting to show divergence with price and MACD’s bearish momentum is weaker. Price could be near to a bottom. A move above 0.6815 could confirm the bottom and a possible price rally to 0.6900.

Support 0.67600.67450.6705
Resistance 0.6785 0.6815 0.6865

GBP/USD – Price recovered this morning to a high of 1.2190 but has not been able to sustain the rally. Price has declined to 1.2120. MACD is still bearish at the moment and could be about to turn lower again while Stochastic has lost its upward momentum. 20EMA is still hinting of another decline. A break of 1.2068 could bring price to the important support at 1.1985.

Support 1.2100 1.2070 1.2030
Resistance 1.2130 1.2175 1.2205

XAU/USD – Price broke above a previous high at 1452.80, reaching a high of 1459.07 this morning. MACD is still bullish and rising and Stochastic is still rising and has not yet make a bearish turn. There is a possibility of price exceeding 1460. The 20EMA is bullish and its gradient steep, hinting of a strong trend.

Support 1452.70 1442.70 1430.60
Resistance 1462.451478.10 1487.95

EUR/GBP – Our trade recommendation was filled on Friday as price went to a low of 0.9089. Luckily it did not hit our stop at 0.9085. Price is back up to 0.9166 and our view remains unchanged. Bring stop higher to 0.9115 and keep target unchanged at 0.9230. MACD is still bullish and rising while Stochastic has not yet turned down from overbought extreme. 20EMA is bullish and moving higher.

Support 0.9150 0.9120 0.9085
Resistance 0.9190 0.92050.9230

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