FX Commentary – ZEW Lifted EUR/USD

– The dollar fell on Tuesday in choppy range-bound trading on the eve of an expected U.S. interest rate cut from the Federal Reserve, with markets anxious about an overnight spike in dollar funding costs though investors still expect a 25 basis points rate cut.

– Gold rose on Tuesday, supported by expectations for an interest rate cut by the U.S. Federal Reserve, and worries over an escalation in Middle East tensions following weekend attacks on Saudi oil production facilities that knocked off 5% of global oil supply.

– Sterling headed towards six-week highs against the dollar on Tuesday as investors continued to cut their short positions, even as Prime Minister Boris Johnson stuck to his pledge to take Britain out of the European Union by Oct. 31.

– The euro was up after an influential survey showed a brightening in German investor confidence. The ZEW index improved to -22.5 in September versus forecasts of -37 and the August reading of -44.1.

– Though investors expect a 25 basis points rate cut, some believe this may be the last rate cut for a while  in absence of more evidence of a U.S. economic slowdown. Money markets are pricing in about an 80% probability of another rate cut by year end.

Chart Focus EUR/JPY
Key Points
1. Sell EUR/JPY recommendation.
2. Sell EUR/JPY at 119.75. Stop at 120.05 and target at 118.65.
3. Tension in the Middle East and interest rate differential are both in favour of safe haven JPY
4. Price is capped by a gap resistance with the signal line of MACD hinting of a bearish trend

Fundamental Comment
1. Tension in the Middle East is likely to aid safe haven Yen
2. Interest rate differential is in Yen favour

Technical Comments
1. Price is capped by a gap resistance
2. The slower line (signal) of MACD is turning bearish which is a hint of a bearish trend

Key Levels

Support 119.40118.95118.65
Resistance 119.85120.15120.65

Technical Overview

USD/JPY – Price has been moving in a very tight range from 108.00 to 108.35 for the past 2 days. MACD is flat and neutral at the moment while Stochastic is still rising. Price could be consolidating ahead of FOMC announcement later tonight. Wait for better trading idea.

Support 107.95107.65107.45
Resistance 108.35108.55108.95

EUR/USD – Price managed to move up yesterday to a high of 1.1076 after hitting a low of 1.0990.  Stochastic is still rising and MACD is still bullish. Both momentum indicators are hinting of further price upside in the near future. As long as price stays above the 20EMA at 1.1045, there is a good chance of price going higher to 1.1100.

Support 1.10601.10301.0995
Resistance 1.10951.11151.1150

GBP/USD – Our buy call was filled yesterday when price fell to a low of 1.2391. Price later rallied to a high of 1.2526, filling our profit order. We are out with a 90 pips gain. While price has made a higher high, MACD and Stochastic both failed to register a higher high, warning of potential market top. A Shooting Star candlestick adds to the bearish signals. Stay aside and wait for FOMC announcement

Support 1.24801.24451.2405
Resistance 1.25251.25601.2595

XAU/USD – Our view remains the same as yesterday. We think the high of 1524 is part of a correction and another decline to 1465 is possible to end the correction. Price has been in a sideways trend for the past 2 days now. This sideway trend is likely to be broken by FOMC announcement. Stay aside and wait for FOMC announcement

Support 1495.901485.601478.05
Resistance 1506.901515.951524.15

AUD/USD – Price has been capped by resistance at 0.6890 and a recent rally also failed to surpass this resistance. MACD has turned bearish but Stochastic is still rising. We are inclined to the bearish side. If price is unable to move above 0.6890, we think it is likely to move lower to 0.6790.

Support 0.68300.67900.6760
Resistance 0.68650.68900.6925

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