FX Commentary – Safe Havens Declined On Crude Oil Pullback

A series of drone attacks hit the world’s largest oil processing facility in Saudi Arabia over the weekend, forcing the Kingdom to cut its oil output in half or about 5% of global oil output. Oil prices came off their session highs after U.S. President Trump authorized the release of oil from the Strategic Petroleum Reserve to keep market “well supplied.”

Attack on oil facility pushed investors toward safer assets like government debt, gold and safe haven currencies. Gold prices jumped 1% on Monday while JPY & CHF, both traditional safe-haven currencies, gave up much of their initial gains with a pullback in crude oil prices.

 Dismal Chinese data indicating that industrial production had grown at its weakest pace in 17-1/2 years also weighed on market sentiment. The latest economic data out of China continued to show an economy under increasing stress from not just the trade war but decades of over-investment and debt-driven growth.

Sterling, which has soared over the past week on growing investor confidence that a no-deal Brexit is off the table, fell back from a two-month high to $1.2426 after a meeting between Boris Johnson and EC Juncker ended without any positive news on Brexit.

The U.S. Federal Open Market Committee is set to meet on Tuesday and Wednesday and markets expect the central bank to cut interest rates by a quarter point. Global growth outlook remains subdued amid the ongoing trade war between the United States and China and this could prove a reason for the Fed to cut rate.

Chart Focus GBP/USD
Key Points
1. Buy GBP/USD recommendation
2. Buy GBP/USD at 1.2420. Stop at 1.2380 and target at 1.2510
3. Fading worries over a no-deal Brexit and expectation of a US rate cut have strengthened the pound
4. Price is supported by the 20EMA with MACD bullish and turning higher.

Fundamental Comment
1. Fading worries over a no-deal Brexit has strengthened the pound
2. Expectation of a US rate cut has weighed on the US$

Technical Comments
1. Price is supported by the 20EMA
2. MACD is bullish with the faster MACD line turning up from the zero line

Key Levels

Support 1.24051.23651.2325
Resistance 1.24451.24801.2505

Technical Overview

USD/JPY – Price moved to a high of 108.35 overnight despite an attack on Saudi oil facilities. The high was marginally above the previous high of 108.26. MACD is bullish but is starting to warn of divergence. Stochastic also has a divergence warning. We think price could have reached a high and could move lower to 107.60 in the next couple of days.

Support 107.95107.65107.45
Resistance 108.35108.55108.95

EUR/USD – Price has declined from the high of 1.1086 to a low of 1.0995, which is also the Fibonacci 62% correction point of the rally from 1.0925 to 1.1086. If price can stay above this support, there is a chance to test the high of 1.1086 again. However a break of this support is likely to test the low of 1.0925. Stochastic is declining but MACD is still bullish.

Support 1.09951.09651.0925
Resistance 1.10301.10601.1090

EUR/JPY – Yesterday, we had a buy call on this pair but price dropped below our stop and we were stopped out on this trade. Stochastic is moving lower but MACD is still bullish. We remain bullish on this pair and we expect price to test the high of 119.90 again in the next couple of days.

Support 118.85118.55118.25
Resistance 119.20119.60120.05

XAU/USD – We think the price rally to 1524.25 on 12 Sep is part of a correction and we see price going lower to 1464.85. However Stochastic could be about to turn higher and MACD is still bullish. Momentum indicators are hinting of a price low. A price move above 1530 would also negate our bearish view.

Support 1487.051478.051465.20
Resistance 1505.701512.401524.40

USD/CAD – Price started Monday at 1.3209 and this could be the low. This low is also the Fibonacci 50% correction point of the rally from 1.3133 to the high of 1.3285. 20EMA is currently providing support at 1.3230. We think price could test the high of 1.3285 again. Stochastic and MACD are both looking to continue moving higher.

Support 1.32301.32101.3175
Resistance 1.32601.32851.3320

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