FX Commentary – Awaiting Powell’s Speech

Market Talk

The dollar weakened on Thursday as investors braced for a speech from the Federal Reserve’s Chairman Powell that would help address the worsening global economic outlook. Expectations are building that he will clarify Fed minutes released on Wednesday and deliver a dovish speech that would soothe market worries about the prospect of recession.

– Market participants expect the Fed announcement could be a stimulus measure, or an affirmation that the U.S. central bank is on a steady path to ease interest rates, a scenario viewed as negative for the dollar. Latest FOMC’s minutes showed a growing view that U.S. policy makers are reluctant to begin a big rate-cutting cycle in the coming months, describing the July easing as a mid-cycle adjustment.

– Interest rate futures traders are pricing in a 91% probability of a rate cut at the Fed’s September 17-18 meeting, according to the CME Group’s FedWatch tool. Philadelphia Federal Reserve Bank President Patrick Harker and Kansas City Federal Reserve Bank President Esther George both said on Thursday they saw no immediate need to cut rates.

– Sterling jumped more than half a cent on Thursday to nearly a one-month high after German Chancellor Angela Merkel said a solution to the Irish border issue could be found before the Oct. 31 deadline for UK to leave the EU. However UK’s PM Johnson was met with skepticism from France’s President Macron.

– New Zealand dollar jumped after the RBNZ chief Adrian Orr told Bloomberg TV he can afford to wait and was “pleased” with monetary policy after stunning investors earlier this month with a sharp 50-basis-point rate cut. RBNZ chief also dampened expectations of more immediate rate cuts after this month’s aggressive easing.

Chart Focus EUR/AUD

Key Points

1. Sell EUR/AUD recommendation
2. Sell EUR/AUD at 1.6380. Stop at 1.6425 and target at 1.6290
3. Talk of Germany issuing more debt to fund fiscal spending and interest rate differential are both against the Euro currency
4. Price is capped by a strong price and 20EMA resistance and momentum indicators are hinting of further price decline

Fundamental Comment

1. Talk of Germany issuing more debt to fund fiscal spending is likely to weaken the Euro currency
2. Interest rate differential is in Aussie favour

Technical Comments

1. Price is capped by a strong price and 20EMA resistance
2. Both MACD and Stochastic are turning lower, hinting of more price decline.

Key Levels

Support 1.63501.63201.6290
Resistance 1.63951.64251.6460

Technical Overview

USD/JPY – Price has been moving in a sideways consolidation for the past 4 days. The boundaries are at 106.70 and 106.15. Stochastic is near to the oversold extreme but MACD flat and neutral. We would suggest waiting for the breakout and to follow in the direction of the breakout for a 50 pips target

Support 106.25105.95105.60
Resistance 106.45106.75107.10

EUR/USD – Our sell call on 21 Aug was filled at 1.1090 and yesterday we had lowered our stop to cost. Our stop was triggered last night. Our view remains unchanged. We are looking at price going to 1.1025. Price is currently at 1.1065 and break of this support is likely to send price lower. Stochastic is declining and MACD has turned bearish.

Support 1.10601.10251.0995
Resistance 1.10901.11151.1155

GBP/USD – Our sell call was stopped out last night with a 50 pips loss. Sterling is now hovering just above a long term downtrend line dating back to 24th June on the 4-hourly chart. Price has also moved above 1.2210, which negated our bearish view. However both MACD and Stochastic have reached their extreme point. We will wait and see how price develops over the next 24 hours.

Support 1.22201.21801.2140
Resistance 1.22751.23251.2380

XAU/USD – Price is consolidating and moving in a sideways manner for the past 3 days. Stochastic and MACD are both bearish. Price is also capped by the 20EMA and tested the low of 1492 last night. The decline managed to hold at the low of 1492.75. A movement below this support will target the previous low of 1485.95. Above 1510 would negate our bearish view.

Support 1492.451485.901477.90
Resistance 1500.601508.451519.10

AUD/USD – We had a buy call on this pair 3 days ago but after the breakout, price has decline back below the downtrend line. There is a possibility of  a false breakout especially since price made a lower low today compared to yesterday 0.6769 low. Price make a low of 0.6744 today but there is a possibility of a Hammer candlestick pattern forming. We would recommend keeping the position for one more day with stop at 0.6740 and to bring profit target lower to 0.6820.

Support 0.67350.67000.6675
Resistance 0.67750.68100.6860

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