FX Commentary – Trade Relief Into Economic Worries

Market Talk

Trade relief turned into economic worries on Wednesday as investors viewed tariffs delay as unlikely to bring US-China closer to a trade resolution. US 2-year and 10-year bond yields inverted for the first time since 2007 weighed on sentiments and increased worries of a global economic recession.

Economic data from China, where industrial output rose in July at the slowest pace in more than 17 years did not help to dispel worries over economic slowdown.  German’s GDP shrank by 0.1% in Q219 fueling fears of a recession for Europe’s largest economy.  Eurozone GDP grew by 0.2% in Q2, lower than Q1 0.4% also did not help sentiment.

An unexpected increase in US crude stockpile revealed the extent of the damage the US-Sino trade war was causing to global economies, sending oil price lower. Canadian dollar was weaker as a result, hovering near last week’s low against the US$.

UK inflation picked up in July to above Bank of England’s target of 2%, coming in at 2.1% but Sterling’s initial strength was weighed down by concerns over a no-deal Brexit as Oct 31 deadline approaches.

Safe havens JPY, CHF and Gold held on to gains against major currencies in early Asian trading on Thursday as investors’ worry over global economic growth continued into a second day. This trend is likely to continue till US data at 8.30pm tonight

Chart Focus EUR/USD

Key Points

1. Sell EUR/USD recommendation

2. Sell EUR/USD at 1.1145. Stop at 1.1190 and profit target at 1.1025

3. Weak German and Eurozone GDP data and interest rate are both in the US$ favour

4. Price broke a support level with bearish MACD is a hint of further price decline

Fundamental Comment

1. German economy suffered a contraction in its Q2 GDP and Eurozone GDP is also weak.

2. Interest rate is in US$ favour

Technical Comments

1. Price broke a support level at 1.1160 and 20EMA is still bearish

2. MACD is bearish

Key Levels

Support 1.11301.11001.1065
Resistance 1.11701.12151.1250

Technical Overview

USD/JPY – Our buy call from yesterday was stopped out at 105.70. Our view remains the same as yesterday. Price has managed to stay above the 20EMA and there is still a chance that price could move higher to 107.40. MACD is still bullish and could be turning up. Stochastic, similarly could also be turning up. A move below 105.50 would negate our bullish view.

Support 106.10105.65105.20
Resistance 106.55 106.95107.40

AUD/USD – Yesterday, we raised our stop loss higher to 0.6740 while keeping our target at 0.6860. Unfortunately, price hit our stop when it went to a low of 0.6734. Yesterday, price movement was almost within the range of the its previous day. This could be a sign of consolidation. Stochastic and MACD are starting to move up and there is still a chance that price could move higher.

Support 0.67700.67300.6700
Resistance 0.68000.68250.6860

GBP/USD – Price seems to be in a consolidation. Price has moved within the range of 1.2045 to 1.2100 over the past 3 days and until price breaks this range, we are likely to see range bound trading. We favour the upside for the moment as MACD is still moving higher.

Support 1.2040 1.2005 1.1985
Resistance 1.2070 1.2105 1.2150

XAU/USD – Price is currently trading within a wild range bar on the 4-hourly chart. Price is likely to trade within this range until there is a movement outside of this range. The top boundary is at 1535 while the lower boundary lies at 1478. MACD is still bullish but there are possible divergence warnings. Stochastic is neutral but we do not think both should be used in a wild range bar environment.

Support 1506.801495.401477.90
Resistance 1515.901524.401534.90

NZD/USD – We had entered into a short position on 8th Aug and this position is still pending. We had lowered stop to 0.6505 and we are recommending lowering stop to 0.6475. Support is at 0.6420 and a break will lead price lower to 0.6380. MACD is still bearish and Stochastic is still weak at the moment.

Support 0.64200.64000.6375
Resistance 0.64600.64950.6525

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