FX Commentary – Safe Haven Reversed On Trade War Reprieve

Market Talk

Safe haven reversed on Tuesday as Trump administration decided to delay tariffs on certain Chinese goods while outright removing some items from the tariff list, reigniting hopes Washington and Beijing could reach a long-term resolution.

Trade negotiators from the U.S. and China held phone conversations on Tuesday and agreed to discuss trade issue again in two weeks, China state-run media Xinhua reported Tuesday. The temporary reprieve in the trade war resulted in Yen, Swiss Francs and Gold suffering a big reversal to their recent strength.

China fixed its daily Yuan midpoint at 7.0312, against analyst’s predication of 7.0502. It was the fifth consecutive day beyond the psychologically 7-yuan per dollar mark. While Yuan was stronger than market expectations, it has steadily been depreciating beyond the important 7 Yuan mark.

News that China’s industrial output rose in July at the slowest pace in more than 17 years is undoing the good news and hopes that Trump’s delay of tariffs had provided overnight. China’s industrial output rose 4.8% in July from a year earlier, which was below the median estimate for a 5.8% year-on-year increase and marked the slowest growth since February 2002, highlighting concerns that trade war is damaging the health of the world’s second largest economy.

UK CPI is scheduled at 4.30pm today while Australian Employment Change and Unemployment Rate is scheduled for tomorrow morning at 9.30am.

Chart Focus USD/JPY

Key Points

1. Buy USD/JPY recommendation

2. Buy USD/JPY at 106.05. Stop at 105.70 and target at 107.40

3. Interest rate and a reprieve in trade war are both not in safe haven JPY favour

4. A strong price move off the low and above the 20EMA with MACD divergence warning of a possible low is a bullish sign

Fundamental Comment

1. A reprieve in trade war is not supportive of safe haven JPY

2. Interest rate differential is in US$ favour

Technical Comments

1. Price has moved above the recent low and its 20EMA with a strong bullish green candle

2. MACD has been giving divergence warnings of a possible price low

Key Levels

Support 106.25105.90105.60
Resistance 106.65107.00107.30

Technical Overview

AUD/USD – Yesterday we had a buy call on this pair at 0.6760. Price reached a low of 0.6746 before climbing higher to 0.6817. Our view remains unchanged. Bring stop higher to 0.6740 and keep profit target at 0.6860. Stochastic is rising but MACD is currently still bearish. Price is capped at 0.6820 but is above the 20EMA. Price needs to stay above the 20EMA for Aussie to be bullish.

Support 0.67750.67300.6700
Resistance 0.6800 0.68250.6860

EUR/USD – Price is moving within the 90 pips range we prescribed yesterday. Price is currently near to the lower boundary of this range. A break of this boundary could lead price lower to 1.1110. MACD is neutral at the moment but Stochastic is still declining. 20EMA is currently pointing lower

Support 1.11601.11351.1105
Resistance 1.11901.12251.1250

GBP/USD – While a MACD divergence is warning of a possible price low, price action is hinting of weakness. 20EMA is also hinting of further price decline. Stochastic is crossing down. We expect price to be capped at 1.2110 and price to move lower to test it previous low of 1.2001 again within the next 48 hours.

Support 1.2040 1.2005 1.1985
Resistance 1.2070 1.2105 1.2150

XAU/USD – Price reached a high of 1534.90 last night but a bearish Engulfing candlestick pattern send price to a low of 1477.90 before price recovered to 1501. 20EMA at 1501 is currently capping price advance. We prefer to stay bearish for today. We expect resistance at 1510 to cap for a test of 1467 in the next 48 hours.

Support 1493.401477.901467.30
Resistance 1503.601519.30 1534.90

NZD/USD – Our short position from 8th Aug is still opened and pending. Yesterday we had lowered stop to 0.6505 and kept profit target at 0.6370. Last night rally reached only a high of 0.6470. Our view remains unchanged. MACD is still bearish even as Stochastic is rising.

Support 0.64300.64000.6375
Resistance 0.64700.64950.6525

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