FX Commentary – Yield Curve Widen Further

Market Talk

– The dollar held gains against the safe-haven yen on Thursday as ebbing recession worries soothed markets after earlier volatility although the pound nursed its losses as investors became increasingly worried about a hard Brexit.

– Britain’s Queen Elizabeth gave the nod to Prime Minister Boris Johnson’s plan to suspend parliament, till Oct 14, leaving opposition lawmakers little time to pass legalization preventing a no-deal Brexit. Chances of a hard Brexit has increased sending Sterling to a six-day low on Wednesday

– Currencies showed little reaction after U.S. Treasury Secretary Steven Mnuchin said he has no intention of intervening in the dollar right now, according to Bloomberg. Traders remain concerned about U.S. currency policy because Trump had complained that the dollar was too strong.

– Investors continue to monitor U.S. Treasury yields. The closely-watched yield spread between the 10-year Treasury note and 2-year note widened further on Wednesday amid developments on the U.S.-China trade front, with the tariff war between the two economic powerhouses recently escalating and further dampening sentiment and raising concerns over the global economic outlook.

– Disappointing data sent NZD and Aussie falling this morning. New Zealand’s August Business Confidence fell to -52.3 vs prior month of -44.3. Australian Private Capital Expenditure for Q2 came in at -0.5% against expectation of +0.4%.

Chart Focus AUD/USD
Key Points

1. Sell AUD/USD recommendation
2. Sell AUD/USD at 0.6725. Stop at 0.6755 and target at 0.6675
3. Poor Aussie data and interest rate differential are in the US$ favour
4. Price is on a declining downtrend and MACD is hinting of more price decline.

Fundamental Comment

1. Poor Aussie Private Capital Expenditure for Q2 is implying a poor economic outlook
2. Interest rate differential is in favour of the US$

Technical Comments

1. Price is on a declining trend channel
2. MACD has turned bearish and is moving lower

Key Levels

Support 0.67200.66950.6675
Resistance 0.67500.67700.6795

Technical Overview

USD/JPY – The sideways consolidation continued yesterday and we are expecting this consolidation to continue again today. The range is smaller today. The two boundaries are at 106.20 and 105.60. MACD is flat and neutral near the zero line. Stochastic is flat in the middle of its range.

Support 105.50105.10104.80
Resistance 105.95106.30106.65

EUR/USD – Price moved in a 26 pips range last night. Although price broke the support at 1.1080, the movement was halted 1.1072. We continue to favour a movement to 1.1050 but Stochastic is turning up. MACD is still bearish and there is still a possibility of price going down to 1.1050. A movement above 1.1120 would negate our bearish view.

Support 1.10501.10251.0995
Resistance 1.10901.11201.1140

GBP/USD – Our sell order was filled when Sterling reached a high of 1.2284. Our profit target at 1.2205 was reached on news of an extension of UK parliament recess. Sterling went as low as 1.2156 before rebounding back to 1.2251. We are expecting price to move lower again today. We see price resistance at 1.2225 and a price test of 1.2160 later today.

Support 1.21951.21501.2110
Resistance 1.22251.22551.2290

EUR/AUD – Price has moved above a recent high at 1.6460. Stochastic is rising and has not yet reached the overbought zone. MACD has turned bullish and is still rising. Momentum indicators are hinting of more price upside. We think price can go higher to the next price resistance at 1.6580 from current 1.6480 level. A price movement below 1.6420 would negate our bullish view.

Support 1.64651.64101.6360
Resistance 1.65151.65451.6580

XAU/USD – Price moved in a sideways range of 1531 to 1547 overnight. We view this sideways movement as part of a 3 parts correction process. One more dip to 20EMA at 1533 could be an opportunity to buy with price expected to test 1554 in the next 48 hours. MACD is still bullish and could be turning up soon. A move below 1523 would negate our bullish view.

Support 1531.451520.101509.10
Resistance 1540.701554.901561.30

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