FX Commentary – Uncertainty Creates Volatility

Market Talk
– Cable jumped in Europe on a report about a deal coming together which sent Sterling as high as 1.2291 but it soon fell apart. Prime Minister Boris Johnson has signaled he will ask for an extension of the Oct. 31 deadline, as required by U.K. law, if he doesn’t get a deal at next week’s summit.

– China is still open to agreeing a partial trade deal with the U.S. An official with direct knowledge of the talks said, signaling that Beijing is focused on limiting the damage to the world’s second-largest economy.

– Bloomberg reported, citing people familiar with the talks, that the United States is weighing a currency pact with China as part of a partial deal that could see a planned tariff hike next week being suspended.

– The South China Morning Post, citing unnamed sources familiar with the discussions, said no progress was made on key issues by deputy ministers and China’s lead negotiator, Vice Premier Liu He, planned on leaving Washington a day early. The US has denied this report. Conflicting reports has added volatility to the market but no real direction.

– The yen fell and the yuan rose on Thursday. Other currencies whipsaw on conflicting trade talks news. The US dollar was also weigh down by comments of Federal Reserve Chairman Jerome Powell’s speech on Tuesday.

Chart Focus AUD/USD
Key Points
1. Buy AUD/USD recommendation
2. Buy AUD/USD at 0.6740. Stop at 0.6705 and target at 0.6800
3. Sino-U.S. uncertainty and Powell comments of possible US rate cuts are both likely to weigh on the US dollar
4. Price supported at the Fibonacci 62% correction point and momentum indicators turning higher are signs of a price advance.

Fundamental Comments
1. Powell’s signal of further US interest rate cut is likely to weigh on the US$
2. Uncertainty over US-Sino trade talk is likely to weigh on the US$

Technical Comments
1. Price decline was halted at Fibonacci 62% correction point
2. Stochastic and MACD are both rising with MACD about to turn bullish

Key Levels

Support 0.67300.67000.6670
Resistance 0.67600.68000.6835

Technical Overview

USD/JPY – Price managed to hold above 106.95 and has moved higher to test the 107.75 resistance. However, price has not been able to break this resistance and has declined down to the support level at 107.45. Our view remains unchanged. Above 106.95, we are looking at 107.75 and a break. A move below 106.95 would target the previous low of 106.45.

Support 107.30106.95106.45
Resistance 107.75108.05108.45

EUR/USD Yesterday we had recommended hanging on to our long position. Price has moved up but has failed to break the 1.0995 resistance again. MACD and Stochastic has both given bearish divergence warning of a possible high. For today, we would recommend bringing stop higher to 1.0960 and lowering profit target to 1.1025 –

Support 1.09601.09401.0905
Resistance 1.10001.10251.1060

GBP/USD – Price has managed to hold above an important support at 1.2195. However a move to 1.2290 failed to sustain and price is again near to the support of 1.2195. Stochastic is still in the oversold extreme and looks weak. MACD is bearish. We think price is likely to test 1.2195 again and a break is likely.

Support 1.21951.21501.2115
Resistance 1.22301.22601.2295

XAU/USD – Price fell to $1499.80 overnight. Our buy call was filled. Price rose to a high of $1516.87 but has fallen down to $1505. Our view remains unchanged from yesterday. We would recommend bringing stop higher to $1499.50 while keeping profit target at 1534.35. Short term traders may wish to place their profit target at 1519.40.

Support 1500.701486.601474.30
Resistance 1509.501519.451527.90

AUD/JPY – Price turned higher after hitting a low of 71.83 this morning. Twice, price tried to test the support and both times, it had failed. Now price has moved above the high of 72.45 and price could be heading higher to 73.05 if price can stay above 72.45. Both Stochastic and MACD are moving up, supporting a possible price movement higher.

Support 72.4572.0571.70
Resistance 72.8573.0573.35

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