FX Commentary – More US Rate Cuts Coming

– Hard Brexit looms after German Chancellor Angela Merkel told U.K. Prime Minister Boris Johnson that his plans for avoiding customs checks on the Irish-U.K. border were unworkable. That leaves the outcome on Oct. 31, when Britain is due to quit the EU, deeply uncertain.

– The dollar gave up some ground gained overnight as the U.S. imposition of visa restrictions on Chinese officials over the treatment of Muslim minorities threatened to derail already delicate trade negotiations. China further complicated talks with ban on NBA games broadcast in China.

– Trade talk begins tomorrow but prospects for progress appear to be dimming as ever-expanding dispute over trade and foreign policy expanded. A Chinese diplomat told Reuters that China wanted a deal, but it cannot be a “zero-sum game”. President Donald Trump said on Monday he had little interest in a partial or interim deal. 

– U.S. Treasury yields fell and the curve steepened after U.S. Federal Reserve Chair Jerome Powell signaled further interest rate cuts and the resumption of bond purchases to address a recent spike in money markets rates. An unexpected drop in US PPI supported the case for more rate cuts.

– The safe-haven Japanese Yen and Swiss Francs both edged higher while stocks tumbled and bond yields fell. Gold rallied back above 1500 on risk aversion as tensions escalated between the US and China as well as a weaker dollar in anticipation of more US rate cuts ahead.

Chart Focus Gold
Key Points
1. Buy Gold recommendation
2. Buy Gold at 1504.50. Stop at 1496.30 and target at 1534.45
3. Risk aversion and expectation of more US rate cuts is supportive of Gold
4. Price supported at Fibonacci 50% correction point with momentum indicators rising, are hinting of further price advancement

Fundamental Comments
1. Expectations of more US rate cuts are good news for Gold.
2. Diminishing hopes of a Sino-U.S. trade deal adds to risk aversion which is supportive of Gold

Technical Comments
1. Price decline halted just above the Fibonacci 50% and is moving higher
2. Stochastic is rising and MACD is still bullish and both are indicating of further price advancement

Key Levels

Support 1500.701486.601474.30
Resistance 1509.501519.451527.90

Technical Overview

USD/JPY – Price managed to hold above 106.95 overnight which could be good for the USD. Stochastic is still rising and MACD is bullish. If price can hold above 106.95, we could see a test of 107.45 again in the next 48 hours. A fall below 106.95 would target the low at 106.45.

Support 106.95106.75106.45
Resistance 107.20107.40107.75

EUR/USD – Our buy call was filled as price dropped down to 1.0940. We are torn between further rate cuts and trade tensions between US and China. We will remain bullish on this pair as price was able to hold at the Fibonacci 62% correction point of the advance. Stochastic is still moving lower but MACD is still bullish. Keep stop at 1.0935 and target at 1.1060 for today.

Support 1.09401.09051.0875
Resistance 1.09751.11001.1025

GBP/USD – Price is testing the Fibonacci 62% correction point of the rally from 1.1958 to the high at 1.2582. Stochastic is into oversold extreme but MACD is bearish. A price break of this Fibonacci 62% correction point could to lead price back to 1.1958 while ability to hold above will maintain the bullish trend. Watch support at 1.2195.

Support 1.21951.21501.2115
Resistance 1.22301.22601.2295

AUD/USD – Price has come back to the neckline of the Double Bottom chart pattern. If price can stay above this neckline, we can see a test of the high at 0.6775 but if price failed to hold above 0.6720, it is likely to re-visit the low of 0.6670 again. Stochastic is near to the oversold extreme but MACD is flat and neutral at the moment. Watch price reaction at the neckline.

Support 0.67200.67000.6670
Resistance 0.67550.67750.6805

AUD/JPY – Our stop was triggered at 72.55 yesterday when price reached a high of 72.53. Price has declined to 71.90 but we think price could break this support today for a move lower to 71.70 to complete the decline. MACD is turning bearish and Stochastic is still declining at the moment.

Support 71.9071.7071.45
Resistance 72.2072.5572.85

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