FX Commentary – Brexit Negotiation Continues

Market Talk

– The dollar found support on Thursday after having weakened on lackluster U.S. retail data, while the volatile pound was on edge as Britain and the European Union scrambled to secure a last-minute Brexit deal. CNBC reported that DUP cannot support Brexit deal in its current state send Sterling below 1.28.

– U.S. retail sales for September fell for the first time in seven months, after stagnating in August, painting a gloomy picture of the U.S. economy and making a case for rate cuts. Fed’s policy maker Charles Evan however forecast no more rate cuts for 2019 in a speech on Wednesday.

– Sterling surged above a five-month high overnight on news of a Brexit agreement but DUP leader dismissed it as nonsense. As Thursday summit approaches, there is still no news of an agreement as negotiators worked on it.

– Inflation in the 19-country euro zone has fallen to its lowest rate since November 2016. Low inflation can be a sign of economic weakness and has been a concern for officials at the ECB, whose goal is to have inflation of just below 2%

– Lingering worries about  the substance of the U.S.’s much-hyped “phase-1” deal to de-escalate the trade dispute with China, kept investors’ risk appetite in check, weighing on the Aussie and other trade-exposed currencies. U.S. legislation backing pro-democracy protests in Hong Kong threatened to derail a possible deal.

Chart Focus EUR/GBP
Key Points
1. Buy EUR/GBP recommendation
2. Buy EUR/GBP at 0.8670. Stop at 0.8635 and target at 0.8790
3. Brexit deal could failed without DUP support and a no deal situation could be bad for Sterling
4. Price has broken up from an Inside Day Range with MACD hinting of a possible price low

Fundamental Comments
1. Brexit withdrawal deal could fail if DUP does not support the deal
2. Failure to get a divorce agreement could be bad for Sterling

Technical Comments
1. Price has broken out of an Inside Day range and is moving higher
2. MACD is showing a bullish divergence which is a hint of a possible price low

Key Levels

Support 0.86400.85950.8550
Resistance 0.86900.87250.8775

Technical Overview

USD/JPY – Our sell order was filled last night when price reached a high of 108.82. Our view remains unchanged. We are looking at price going down to 107.95 in the next 48 hours. Both Stochastic and MACD have given bearish divergence warnings of a possible high. Keep stop at 109.05 and profit target at 108.05

Support 108.60108.35107.95
Resistance 108.95109.30109.60

EUR/USD – Yesterday, we had called for a rally to 1.1105 and price has reached a high of 1.1085. Our view remains unchanged. A test of 1.1105 is possible but price could be near to a high. After a test of the topside, we are looking at a price decline back to 1.1040. Stochastic is still rising and MACD is bullish. Momentum indicators have not given a reversal warning as yet.

Support 1.10601.10251.0995
Resistance 1.10951.11151.1155

GBP/USD – Price reached a high of 1.2871 on news of a possible Brexit deal. CNBC reported at 2pm that DUP cannot support the Brexit deal “as thing stand” send Sterling below 1.28. Both Stochastic and MACD have given bearish divergence warning of a possible high. Price will need to break below 1.2710 to be bearish. Stay aside for now.

Support 1.27101.26651.2605
Resistance 1.27851.28251.2870

XAU/USD – Yesterday, we had called for a test to 1474 but price only reached a low of 1477. Price has started to move higher and with DUP not in favour of current Brexit deal, we think price could test the resistance at 1504.  Stochastic is moving higher but MACD is still bearish. Above 1504 could mean an end to the correction process

Support 1486.701474.101462.30
Resistance 1495.601504.101516.85

USD/SGD – Price recent lows around 1.3670 could be a sign of a bottoming process. The decline to this level is also the Fibonacci 62% of the rally from 1.3495 to the high at 1.3940. MACD has given a bullish divergence warning of a possible low and Stochastic is into the oversold extreme. If price can hold above 1.3670, price can go higher to 1.3860 again.

Support 1.36701.36201.3580
Resistance 1.37051.37501.3780

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