FX Commentary – Uncertainties Over Sino-U.S. Trade Deal

Market Talk

– The dollar hovered below 2-1/2-month highs against the yen on Tuesday, failing to extend recent gains as optimism over trade negotiations between the world’s two largest economies and Brexit withdrawal agreement between the UK and the European Union started to fade.

– Although markets initially welcomed the “Phase 1” trade deal between the United States and China that President Donald Trump outlined last week, a lack of details and a Bloomberg report on Monday, citing sources, saying China wants more talks to hammer out the details of Trump’s phase 1 deal before Chinese President Xi Jinping agrees to sign it dampened hopes.

– The negotiation between the UK and the European Union over Britain’s exit also looked equally fleeting as optimism gave way to doubts. Market is skeptical Johnson could secure a deal before presenting it to the U.K. Parliament on Saturday.

– Johnson had wanted to strike an exit deal at an EU summit on Thursday and Friday to allow an orderly departure on Oct. 31. If an agreement is not possible, he said he will lead the UK out of the EU without a deal – even though parliament had passed a law saying he cannot do so.

– China consumer price index increased 3% on-year last month while the producer price index fell by 1.2%, which was the fastest pace in more than 3 years in September, reinforcing the case for China to unveil further stimulus as manufacturing cools on weak demand and US trade pressures.

Chart Focus USD/CAD
Key Points
1. Sell USD/CAD recommendation
2. Sell USD/CAD at 1.3240. Stop at 1.3280 and target at 1.3170
3. A strong Canadian job report and a rise in crude oil price are both aiding the Canadian dollar
4. Strong Fibonacci zone and bearish MACD are hints of further price decline.

Fundamental Comments
1. A strong Canadian job report on Friday is aiding the Canadian dollar
2. A rise in crude oil price is also aiding the Canadian dollar

Technical Comments
1. Strong Fibonacci resistance zone from 1.3240 to 1.3260 is likely to cap USD advance against Canadian dollar
2. MACD is bearish and could be turning down, hinting of further

Key Levels

Support 1.32001.31701.3135
Resistance 1.32401.32751.3320

Technical Overview

USD/JPY – Price only managed to move to a low of 108.01 and has turned higher to test the resistance again at 108.45. A break of this resistance will bring price higher to 108.95 and 109.30 is also possible. Stochastic is rising and has not yet reached the overbought extreme. MACD is bullish and is moving higher as well.

Support 108.15107.80107.30
Resistance 108.60108.95109.30

EUR/USD – Price managed to find support above 1.1000 and there is a chance we can see 1.1060 again within the next 1-2 days. Stochastic is still declining but MACD is bullish and the faster line is turning around, which is a hint of price advancement ahead. 20EMA is also supporting price at the moment.

Support 1.10101.09951.0965
Resistance 1.10401.10651.1095

GBP/USD – Price’s low at 1.2510 was at the Fibonacci 38% correction point of the rally from 1.2195 to 1.2707. We had recommended buying at this point in our commentary yesterday. Price should be heading towards the high of 1.2707 again within the next 2 days. Both momentum indicators are bullish and hinting of further price upside.

Support 1.26051.25751.2510
Resistance 1.26501.27101.2740

XAU/USD – Our view for Gold remains the same as yesterday. If price is unable to move above 1504, there is a risk of another decline to 1474 or lower to complete the correction progress. If price can go above 1504, we think it will head higher to 1519. Stochastic is rising but MACD is still bearish. Momentum indicators are mixed at the moment.

Support 1482.101474.101462.30
Resistance 1495.601503.501516.90

AUD/JPY – Yesterday we had a buy call which was filled when price declined to 72.98. Price reached a high of 73.59 this morning but with doubts seeping in on Sino-U.S. trade pact, we would recommend bringing stop to cost at 73.15 and lowering profit target to 73.95. Stochastic has been declining while price moves higher as MACD is still bullish.

Support 73.1572.8572.50
Resistance 73.6073.9574.25

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