FX Commentary – Has Trade Resolution Faded With Increased Tariffs?

Market Talk

– Gold and the yen rose on Monday, driven by an appetite for safe-haven assets as US and China imposed additional tariffs on each other’s exports, as the trade war between the world’s two largest economies rages on, adding to the gloom overhanging the global economic outlook.

– The United States began imposing 15% tariffs on a variety of Chinese goods on Sunday as China began imposing new duties on U.S. crude. U.S. President Donald Trump said the sides would still meet for talks later this month, but hopes for a resolution to the trade war have diminished.

– The Chinese Yuan fell toward the lowest since international trading in 2010 in a sign of concern about China’s slowing economy. China plans to provide more support for its economy to offset the impact trade tariffs, the State Council said on Sunday.

– The Caixin/Markit factory Purchasing Managers’ Index (PMI) was 50.4 in August, better than  the 49.8 analysts polled by Reuters had expected, despite an escalation in trade dispute between China and the US. The official manufacturing PMI, release on Saturday, fell to 49.5 in August, China’s National Bureau of Statistics said, compared to 49.7 in July.

– The euro sank below $1.10 for the first time since May 2017 weighed down by Italian turmoil and a poor Euro zone economic outlook. Italian bonds fell as the country’s political crisis took another twist with officials clashing as they attempted to form a new ruling coalition.

Chart Focus Gold
Key Points

1. Buy Gold recommendation
2. Buy Gold at 1517.80. Stop at 1505.20 and target at 1537.50
3. Trade tensions increased and US interest rate cut are both positive for Gold
4. Price is coming into a strong support area with momentum indicators hinting of a price advance.

Fundamental Comment

1. Trade tensions increased between the world 2 largest economies as they imposed additional tariffs on each other’s import.
2. Expectation of a US rate cut at Sep 17-18 FOMC meeting is supporting Gold

Technical Comments

1. Price is coming into a 4-year trend channel and could be supported at this long term support area.
2. Both Stochastic and MACD could be turning up again from their extreme point.

Key Levels

Support 1516.801507.801493.50
Resistance 1528.801537.801544.90

Technical Overview

USD/JPY – Price failed to sustain its break above 106.60 and has declined lower to 105.90 this morning. Price is likely to move within the range of 106.60 to 105.60 again until there is a breakout of these two boundaries. Stochastic is still declining but MACD fast line is turning up from the zero line and is hinting of a possible price advance. Stay aside for today.

Support 105.90105.60105.30
Resistance 106.35106.65106.95

EUR/USD – Price has declined lower to 1.0962 on Friday and while the short term looks oversold, the longer bearish term could continue again after a correction. Resistance is at 1.1035 and we are expecting price to be capped at this resistance point. MACD is bearish and 20EMA is bearish and its gradient steep. 20EMA is warning of a strong bearish trend.

Support 1.09801.09501.0910
Resistance 1.10001.10351.1060

GBP/USD – Price reached a low of 1.2138 and this could mark a temporary low. Stochastic is into the oversold extreme at the moment. MACD, while bearish could be turning up in a corrective move. Price could move up to test the 20EMA resistance point at 1.2190

Support 1.21501.21101.2080
Resistance 1.21901.22351.2265

AUD/USD – Our sell call from Thursday is still pending. Price is coming into 20EMA resistance at 0.6730. If price is unable to move above this resistance, it is likely to decline lower to 0.6705 to test the low again. A break above the resistance would target the high at 0.6755.

Support 0.67050.66750.6630
Resistance 0.67350.67600.6795

AUD/JPY – Our sell call on Friday was filled when price reached a high of 71.60. Price dropped to 71.20 early this morning but has recovered higher to 71.52. Stochastic is rising and MACD could be turning bullish. We would recommend bringing stop lower to 0.7165 and keep profit target at 70.80.

Support 71.2570.8570.60
Resistance 71.5571.8072.05

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