FX Commentary – Sterling To Follow Yuan’s Footstep?

Market Talk

The Chinese Yuan strengthened and demand for safe haven currencies like the Japanese yen and Swiss franc fell on Tuesday as China appeared to take steps to stabilize its currency two days after the Yuan breached a key level that sparked broad risk aversion.

Onshore Yuan stayed above 7 but strengthened to 7.0235 per dollar, after weakening as far as 7.0575 overnight. The offshore Yuan also strengthened to 7.0482, down from a high of 7.1397. China’s Yuan may have steadied but investors’ sentiments remain fragile.

Tensions between the United States and China are likely to keep investors cautious with no end in sight to the Sino-U.S. trade war. The world’s two-largest economies are locked in an intense trade dispute that rapidly escalated late last week when U.S. President Donald Trump said he would impose more tariffs on Chinese goods.

The British pound rebounded on Tuesday to hold above recent lows, but traders are still worry that UK is headed for a no-deal Brexit. The Guardian newspaper reported late on Monday that Brussels diplomats, briefed after a meeting with British Prime Minister Boris Johnson’s chief European envoy, and said it was clear Johnson had no intention of renegotiating the withdrawal agreement.

RBNZ cuts it cash rate by a whopping 50bps against market expectations of a 25bps cut. Quantum of cut was also more than expected, sending the NZD down a big figure against the US$. RBNZ’s committee agreed that a larger momentary stimulus would best ensure meeting inflation and employment objectives

Chart Focus USD/CHF

Key Points

1. Sell USD/CHF recommendation

2. Sell USD/CHF at 0.9790. Stop at 0.9825 and target at 0.9700

3. Chinese Yuan weakness and trade tensions between US and China are both likely to keep the safe haven CHF strong

4. Price is capped by 20EMA and Fibonacci correction point while MACD is pointing to more price decline

Fundamental Comment

1. Trade tensions between the US and China is likely to keep safe haven CHF strong.

2. Chinese Yuan weakness is also likely to keep safe haven CHF strong.

Technical Comments

1. Price is capped by the 20EMA and Fibonacci 38% correction point

2. MACD is bearish and hinting of a strong price decline ahead.

Key Levels

Support 0.97450.97050.9690
Resistance 0.97800.98100.9835

Technical Overview

USD/JPY – Price recovery was capped at the Fibonacci 38% correction point and price has since declined to 106.20. We feel the decline may not be over as yet. We think price could be heading back to 105.50 to re-test the low. MACD is still bearish and is turning down again. Stochastic is also turning down again after reaching only the mid-way point of its range.

Support 105.90105.50105.25
Resistance 106.35 106.70 107.10

EUR/USD – Price is consolidating after reaching a high of 1.1250. Support is at the 20EMA point of 1.1175 and another support is at 1.1160. MACD is still bearish and Stochastic could be moving higher again. If price can stay above 1.1150, it is likely to test the high of 1.1250 and maybe even 1.1280. A move below 1.1140 will negate our bullish view.

Support 1.11901.11601.1120
Resistance 1.12201.12501.1280

GBP/USD – Price has been capped at 1.2200 and with Stochastic moving lower and MACD about to turn down, we think the next direction would likely be down. We think price is likely to test the previous low of 1.2070 again over the next few days. A move above 1.2200 would negate our bearish view

Support 1.2135 1.2100 1.2070
Resistance 1.2170 1.2210 1.2245

XAU/USD – Price only reached a low of 1455 and has turned up again to another new high at 1490. Stochastic is into overbought extreme but MACD is still bullish and very strong. 20EMA is also bullish and it gradient steep, hinting of a strong bullish trend. The next important price resistance lies at 1526-1530 area.

Support 1474.80 1464.65 1458.90
Resistance 1490.001500.00 1522.50

EUR/JPY – As price reached only a high of 119.45, our sell call was not filled yesterday. Price is currently hanging around the 20EMA but Stochastic is starting to move lower. MACD is still bearish and its histogram is hinting of price decline. If price is capped at 119.60, it is likely to head lower to 117.70 over the next few days.

Support 118.90118.50118.05
Resistance 119.30 119.85120.25

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