FX Commentary – US Involvement In HK Could Derail Trade Deal

The British pound fell from its highest level in almost five months versus the U.S. dollar on Wednesday as investors started to question their optimism about Britain’s negotiations to leave the European Union.

– Sterling had spiked on Tuesday, after Bloomberg reported that the U.K. and European Union are close to agreeing on a legal draft of a Brexit deal. Comments from the EU’s top negotiator Michel Barnier, that a deal at a summit at the end of the week “is still possible”, aided Sterling.

– Economic data from Europe painted a less rosy economic climate. Uncertainty from Brexit was blamed as UK unemployment rate rose while average earning dropped. In Germany, ZEW index fell less than expected although a sub-index hit its lowest level since 2010.

– Japanese yen gained some ground on Wednesday’s morning on growing disappointment with US effort to scale back its trade war with China. US had tabled a bill in support of HK pro-democracy which China had threatened with retaliation. News report that China has mentioned that it will struggle to buy $50 billion of US farm goods annually unless the US removes retaliatory tariffs that have been put in place since the trade war began also weighs on the market.

– At 4.30pm, there is UK CPI to watch out for while US Retail Sales data is scheduled for 8.30pm tonight.

Chart Focus USD/JPY
Key Points
1. Sell USD/JPY recommendation
2. Sell USD/JPY at 108.75. Stop at 109.05 and target at 108.05
3. US legalization on HK could derail trade deal with cracks starting to appear on trade deal.
4. Price has reached a strong price resistance with MACD showing bearish divergence is a hint of a possible top.

Fundamental Comments
1. Cracks are starting to appear on Sino-U.S trade deal.
2. US legalization on Hong Kong pro-democracy could derail trade deal

Technical Comments
1. Price has reached a strong price resistance
2. MACD is showing divergence warning, hinting of a possible price high

Key Levels

Support 108.40108.05107.60
Resistance 108.95109.30109.60

Technical Overview

USD/CAD – Our buy order was not filled as price missed our price by 2 pips. Price has declined to a low of 1.3193 and the current pullback could be part of a correction. 20EMA is declining and as long as price stays below this 20EMA, our view is a test of 1.3170 and later a test to 1.3135. MACD is bearish and Stochastic is turning down at the moment

Support 1.31901.31701.3135
Resistance 1.32101.32401.3275

EUR/USD – Despite the bearish divergence and price breaking below a 2-week trend channel, price managed to bounce back up and higher to 1.1060 again. MACD has turned bullish and is rising. Stochastic is also rising which could see price rising to 1.1105. A move below 1.0995 would abort our bullish view.

Support 1.10251.09951.0965
Resistance 1.10651.10951.1110

GBP/USD – Price has reached a high of almost 1.2800 but there is divergence warning emerging from the MACD indicator. MACD is still bullish at the moment with both its lines above the zero line. Stochastic is also into overbought extreme. We are expecting a pause in the Sterling uptrend and looking for a correction back to 1.2635.

Support 1.27351.26551.2605
Resistance 1.28001.28501.2895

XAU/USD – Our view remains the same as yesterday. As long as price is unable to move above 1504, the correction continues and should target the low of 1474 again with 1463 a possibility. Price has started to move lower with MACD bearish and Stochastic trending lower

Support 1474.101462.301452.75
Resistance 1485.051495.601504.10

AUD/JPY – Yesterday, we had brought our stop higher to cost at 73.15 and lower profit target to 73.95. Our stop at 73.15 was triggered and we are out without a loss. MACD is still bullish and Stochastic had a bullish crossover and moving higher. Momentum indicators are hinting of further price advance ahead.

Support 73.0572.8572.50
Resistance 73.4573.7073.95

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