The U.S. Federal Reserve on Wednesday cut its overnight rate by 25 basis points in a move that was widely expected. The central bank, however, appeared divided on further action. In a sign of different opinions within the Fed, seven members voted for quarter-point rate cut while 3 others voted against.
In cutting interest rates for the second time this year, the Fed gave priority to ongoing global risks and “weakened” business investment and exports. But new projections showed policy makers at the median expected rates 1.75% to 2% to stay within the new range through 2020. There could be just one more rate cut in the next 15 months.
Crude oil fell to $58.30 after Trump ordered the Treasury Department to “substantially increase” sanctions on Iran instead of military action. A softening in his rhetoric as he had warned on Sunday that the U.S. was “locked and loaded” to respond to the Saudi incident helped to ease political tension in the Middle East.
Aussie Employment beat forecast with an increase of 34,700 jobs against an expectation of 15k. However an increase in unemployment rate to 5.3% from 5.2% soured the data. AUD/USD fell below 0.68 against the US$ on the news.
USD/JPY declined on Thursday following the conclusion of the Bank of Japan’s meeting. The BoJ kept its short-term rate target at -0.1%, but noted in a statement that “it is becoming necessary to pay closer attention to the possibility that the momentum towards achieving its price target will be lost.
Chart Focus USD/JPY
Key Points
1. Sell USD/JPY recommendation
2. Sell USD/JPY at 108.00. Stop at 108.40 and target at 106.75
3. Cut in US interest rate and tit-for-tat sanctions could increase tensions in the Middle East favouring safe haven Yen
4. Price has broken a 1-month rising trend line with both MACD and Stochastic warning of a possible high reversal
Fundamental Comment
1. Cut in US interest rate has reduced the interest rate differential between the 2 currencies
2. Increase in sanctions on Iran could lead to retaliation and higher risk and tensions in the Middle East
Technical Comments
1. Price may have formed a Double Top chart pattern and have broken a one month rising trendline
2. Both MACD and Stochastic are warning of a possible price top with bearish divergence warnings
Key Levels
| Support | 107.75 | 107.45 | 107.15 |
| Resistance | 108.10 | 108.50 | 108.90 |
Technical Overview
EUR/JPY – Yesterday, we had a sell call at 119.75 but price reached only a high of 119.74, missing our sell entry. Both Stochastic and MACD are turning lower, hinting of a possible price decline. Price had declined to a low of 118.94 but could be moving lower to 118.70 or lower.
| Support | 118.95 | 118.65 | 118.25 |
| Resistance | 119.40 | 119.85 | 120.15 |
EUR/USD – Price could be forming a Triangle chart pattern and it could take another 24 hours of consolidation before the breakout occurs. Stochastic is rising but MACD is neutral and flat. 20EMA is also flat and neutral. Watch the Triangle boundaries at 1.1060 and 1.1015 for clues. We favour a breakout on the topside.
| Support | 1.1015 | 1.0990 | 1.0960 |
| Resistance | 1.1060 | 1.1095 | 1.1115 |
GBP/USD – Price reached a high of 1.2525 and has been consolidating. We expect BoE meeting tonight at 7pm to provide the next direction in trend. We favour the downside as we think price could have reached a recent high with bearish divergence warnings from both MACD and Stochastic.
| Support | 1.2435 | 1.2390 | 1.2350 |
| Resistance | 1.2490 | 1.2525 | 1.2560 |
XAU/USD – Price reached a low of 1482.50 last night which was just above the recent low of 1481. MACD is neutral while Stochastic is still declining. We had favoured a decline to 1465 to complete the correction but price could have seen a low at 1481. A move above 1530 would renew the bullish trend.
| Support | 1492.90 | 1485.60 | 1478.05 |
| Resistance | 1507.40 | 1515.95 | 1524.15 |
AUD/USD – Yesterday, we had warned of a movement to 0.6790. Currently price has just dropped below this point. The next point to watch out for is the Fibonacci 62% retracement point at 0.6765. A break of this point would be bearish. MACD is currently bearish and Stochastic is falling into the overbought extreme but we think price will continue to fall further to 0.6705.
| Support | 0.6765 | 0.6730 | 0.6705 |
| Resistance | 0.6800 | 0.6830 | 0.6865 |
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