FX Commentary – Sharp Re-escalation In Trade War

Market Talk

The Yen, Swiss Franc and Gold surged on Monday as investors flocked to safe-haven assets after a sharp re-escalation in the U.S.-China trade war, with both sides increasing tariffs on each other’s’ import, which whacked investor confidence and darkened the global economic outlook.

– The US dollar had stumbled on Friday after President Donald Trump ordered U.S. companies to start looking for an alternative to China after Beijing imposed more tariffs on American goods, further exacerbating a prolonged trade war between the world’s two largest economies.

– President Donald Trump announced an additional 5% duty on $550 billion in targeted Chinese goods in retaliation after Beijing announced tariffs on $75 billion worth of U.S. products. However Trump does not intend to follow up on US companies looking for alternative to China.

– The Yuan also tumbled in offshore trade, weighed by expectations of a deeper slowdown in China as the world’s two-largest economies exchanged barbs over trade. PBOC fixed the mid-rate for Yuan today at 7.0570, which is the highest mid-price this year.

– Federal Reserve Chair Jerome Powell did not announce a major stimulus measure in his Friday’s speech to ease a worsening global economic outlook, but set the stage for further interest rate cuts. Powell said the U.S. economy was in a “favorable place” and the Fed would “act as appropriate” to keep the economic expansion on track.

Chart Focus NZD/USD
Key Points
1. Buy NZD/USD recommendation
2. Buy NZD/USD at 0.6375. Stop at 0.6335 and target at 0.6470
3. Trade war between US and China is likely to weigh on the US economy and expectation of a US rate cut is bad for the US$
4. A Pin Bar formation is warning of a price low with Stochastic rising.

Fundamental Comment
1. Expectation of US interest rate cut is weighing on the US$
2. Trade war between US and China is likely to weigh on the US economy

Technical Comments
1. A Pin Bar price formation is warning of a price low at 0.6340
2. Stochastic is rising while MACD is near to the zero line and could turn up

Key Levels

Support 0.63600.63350.6300
Resistance 0.63950.64300.6470

Technical Overview

USD/JPY – Price saw a sharp decline this morning to 104.43 but rebounded back strongly. Price has also closed a gap that was created this morning at the opening.  On the 4-hourly chart, this rebound has resulted in a Pin Bar formation, warning of a possible low. Stochastic and MACD has also reached an extreme and both could be turning up again. Price may test the 20EMA resistance at 105.95.

Support 105.10104.80104.40
Resistance 105.50105.95106.25

EUR/USD – Price continued from the strong rally seen on Friday, rising to a high this morning at 1.1163. 20EMA is rising and its gradient is steep, which is a hint of a strong bullish trend. MACD and Stochastic are both bullish. We see a price pullback towards 1.1130 as an ideal opportunity to long for a test of 1.1200

Support 1.11301.10951.1050
Resistance 1.11601.11951.1230

GBP/USD – Price rose to a high of 1.2292 on Friday night but we could be seeing sign of waning momentum. Stochastic is losing momentum as it moves into overbought extreme. MACD is warning of a possible bearish divergence with price. Topside could be limited to 1.2325 or 1.2295

Support 1.22501.22101.2180
Resistance 1.22951.23251.2365

XAU/USD – Price rose to a high of 1554.65 this morning and both momentum indicators are not hinting of a high as yet. Stochastic and MACD are both still rising. 20EMA is rising as well. We could see price going higher to 1585 in the next few days. Support lies at 1527.40.

Support 1538.051528.501519.05
Resistance 1544.101554.651565.20

EUR/AUD – Our sell call on Friday was stopped out on escalation of trade war between U.S. and China. We lost 45 pips as a result. MACD has turned bullish and is rising. Stochastic is near to the overbought extreme and is moving lower. The trend could be bullish. We advocate a buy on dip strategy.

Support 1.65201.64601.6425
Resistance 1.65801.66251.6680

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