FX Commentary – Market Consolidates Ahead of Jackson Hole Summit

Market Talk

  • The dollar traded lower on Tuesday, in line with a drop in Treasury yields, as investors braced for a potentially dovish Federal Reserve at a Jackson Hole, Wyoming later this week, with many expecting an announcement of some measure that would ease U.S. recession concerns.
  • The euro rose against the dollar to $1.1093 after Italy’s PM Giuseppe Conte announced his resignation on Tuesday even as he made a blistering attack on his own interior minister, Matteo Salvini, accusing him of sinking the ruling coalition and endangering the economy for personal and political gain.
  • Sterling briefly jumped on Tuesday night after German chancellor Angela Merkel said the EU would think about practical solutions to the Irish backstop. UK PM Johnson had written to EC President Donald Tusk on Monday to propose replacing the Irish border backstop with a commitment to put in place alternative arrangements by the end of a post-Brexit transition period.
  • U.S. government debt yields fell on Tuesday as hopes for stimulus in major economies appeared to soothe investor concerns about a possible global recession. FOMC minutes of the previous meeting will be released tomorrow morning at 2am.
  • The session in Asia followed overnight declines in the U.S. and in Europe, where Italy’s mounting political crisis is likely to cause a dent in investor sentiment. There was little news flow to trade on as investors await guidance from central bankers later in the week.

Chart Focus EUR/USD

Key Points

  1. Sell EUR/USD recommendation
  2. Sell EUR/USD at 1.1090. Stop at 1.1125 and target at 1.1025
  3. Italian political turmoil and interest rate differential are both in the US$ favour
  4. 20EMA and price resistance are capping the EUR/USD and MACD is hinting of further price decline.

Fundamental Comment

  1. Italian political turmoil is likely to weigh on the Euro currency
  2. Interest rate differential is in the US$ favour

Technical Comments

  1. Price is capped by 20EMA and a strong price resistance
  2. MACD is bearish and is about to turn down, hinting of further price decline

Key Levels

Support 1.10751.10501.1025
Resistance 1.11001.11301.1160

Technical Overview

AUD/USD – Our buy call was filled last night when price reached a low of 0.6769. However, the rally we were looking for did not materialized as yet as price is still below the downtrend line. However we remain bullish on this pair and would recommend keeping stop at 0.6740 and profit target at 0.6860. Stochastic is still rising but MACD is flat at the moment.

Support 0.67600.67300.6700
Resistance 0.67950.68200.6865

GBP/USD – Price shot up yesterday but was capped by the rising tend channel resistance at 1.2180. MACD has given a bearish divergence warning when price hit the high at 1.2180. Stochastic is still rising. We think price may have hit a top and could be declining again. We see price going back to 1.2070 if it cannot stay above the 20EMA support at 1.2130. Above 1.2200 would negate our bearish view.

Support 1.21301.20901.2045
Resistance 1.21801.22101.2245

EUR/AUD – Yesterday, price declined to a low of 1.6307 and has since rebounded higher to 1.6383. Stochastic and MACD are turning down. We remain bearish on this pair. We see price going down to 1.6250 and finally to 1.6160 in the next few days. We recommend bringing stop lower to cost at 1.6390 while keep profit target at 1.6160.

Support 1.63451.63051.6275
Resistance 1.6375 1.6405 1.6435

XAU/USD – Price managed to move higher after touching a low of 1492.20 but the price advance is capped by the falling 20EMA. MACD is also bearish and has yet to turn bullish. Stochastic is still rising. We would prefer to wait and see how price unfolds before we commit to a long position

Support 1501.151492.701485.95
Resistance 1508.401517.101527.75

USD/CHF – We raised our stop yesterday to 0.9790 and we were stopped out last night. We still managed a 10 pips profit. There is still a chance of a price movement to 0.9835 as last night correction managed to stay above a previous low support. MACD is still bullish but Stochastic has been declining.

Support 0.97700.97450.9710
Resistance 0.98200.98650.9900

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