FX Commentary – Concerns Over US Economic Slowdown Weakened US$

Market Talk

– The dollar fell to a four-week low against the yen and a one-week trough versus the Euro on Thursday, amid persistent concerns over fresh indications of a slowdown in the U.S. economy and a broadening of global trade friction.

– Data on Thursday showed that the Institute for Supply Management’s services sector index fell to 52.6 in September to its worst level since Aug 2016. The survey’s employment index slid to 50.4 from 53.1 in August. September’s employment index also showed a slowing pace of US hiring and was the lowest since February 2014.

– In Europe, Markit PMI data was worse than expected, with the Eurozone composite PMI falling to 50.1, only a whisker above expansion. The U.K. composite index fell below 50 to 49.3, triggering a further sell-off in U.K. stocks.

– Sterling rallied against the dollar to $1.24 after the head of a group of Eurosceptic lawmakers in Prime Minister Boris Johnson’s Conservative Party said on Thursday the government’s latest Brexit proposals offered the possibility of a “tolerable deal” raising hope of UK parliament voting in favour of the proposal.

– Investors are now waiting for Friday’s US employment report to confirm or quell recession worries. NFP is scheduled for release tonight at 8.30pm

Chart Focus USD/JPY
Key Points
1. Sell USD/JPY recommendation
2. Sell USD/JPY at 106.95. Stop at 107.30 and target at 106.00
3. Global economic slowdown and slowing US economy are both against the US$
4. A Double Top chart pattern and bearish MACD are both hinting of further price declines

Fundamental Comments
1. Global economic slowdown is moving capital into safe haven JPY
2. Slowing US economy has increased speculation of another Fed rate cut this year

Technical Comments
1. Price has broken below the neckline of a Double Top chart pattern confirming a possible price decline to 105.70
2. MACD is bearish and both its lines are below the zero line

Key Levels

Support 106.45106.05105.65
Resistance 106.95107.25107.60

Technical Overview

AUD/JPY – Price has come into the 20EMA resistance point at 72.15. MACD is bearish at the moment and could be turning lower again, hinting of a price decline. However, Stochastic is rising at the moment.  If price is unable to move above 72.50, the likelihood is another decline to test the previous low of 71.75.

Support 71.9071.7071.45
Resistance 72.1572.4572.70

EUR/USD – Our buy call yesterday was not filled as price dropped to a low of 1.0944. Price has moved higher overnight to 1.0998. Stochastic and MACD have both given bearish divergence warning. There is a possibility price may have reached a high and could be heading lower. Wait and watch for reversal confirmation.

Support 1.09601.09401.0915
Resistance 1.09951.10251.1045

GBP/USD – Price moved to a high of 1.2412 last night but in that process, an Evening Doji Star candlestick pattern was formed, hinting of a possible reversal to the downside at 1.2270 again. Stochastic has started to turn down from overbought extreme but MACD remains bullish at the moment. Price is also above the 20EMA at the moment. Wait for confirmation of a reversal.

Support 1.23151.22701.2230
Resistance 1.23551.23801.2415

XAU/USD – Price moved higher to 1519.40 last night but failed to move to our more bullish target at 1527. Price could have made a temporary high and there could be a correction lower to 1495 again in the next 48 hours. Stochastic is starting to turn down from overbought extreme but MACD is still bullish

Support 1504.401494.401483.70
Resistance 1512.251525.501535.65

AUD/USD – Price had reached a low of 0.6671 and yesterday, price broke above the neckline of the Double Bottom chart pattern. Price is now higher and could be headed to 0.6770. Stochastic is into the overbought extreme but MACD is still bullish and there is a chance of price testing the target.

Support 0.67350.67000.6670
Resistance 0.67700.68000.6830

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