FX Commentary – Brexit Uncertainty Extended

Market Talk

– The pound steadied on Wednesday after an overnight fall as Brexit hung in the balance, after UK Parliament rejected Prime Minister Boris Johnson’s plan to fast-track his Brexit accord through parliament.

– Sterling initially rose on Tuesday after parliament voted by 329 to 299 in favor of Prime Minister Boris Johnson’s Brexit plan but then opposed Johnson’s extremely tight timetable to complete the legislative process in three days by 322 to 308 votes.

– It is now up to the EU to decide whether to extend Britain’s Oct. 31 deadline for its departure from the bloc, although there is hope Britain can avoid the worst case scenario, which is leaving the EU without any deal in place.

– The yen rose against the U.S. dollar and the Australian dollar as some investors sought a safe haven amid doubts after an exclusive Reuters report that one of the U.S. advisors to U.S. President Donald Trump on trade talks with China, Kelly Ann Shaw will leave the government introduces some uncertainty about future trade talks.

– US existing home sales for September came in below expectation although details suggested a more stable housing market than headlines indicated but US Treasury yields fell and weakened the US dollar as a result.

Chart Focus EUR/AUD
Key Points
1. Buy EUR/AUD recommendation
2. Buy EUR/AUD at 1.6245. Stop at 1.6210 and target at 1.6315
3. Uncertainty in Sino-US trade talk with Kelly Ann Shaw leaving and removal of hard Brexit are both in favour of the Euro and against the Aussie
4. Price supported at a previous low with MACD showing divergence and hinting of a possible price low is likely to see price moving higher.

Fundamental Comments
1. Uncertainty in Sino-US trade talk with Kelly Ann Shaw leaving is bad for Aussie dollar
2. Removal of hard Brexit is favourable for Euro dollar

Technical Comments
1. Price is supported at a previous low and price movement above the 20EMA could hint of a bottom
2. MACD is showing divergence warning of a potential low

Key Levels

Support 1.62401.62001.6170
Resistance 1.62701.63101.6345

Technical Overview

USD/JPY – Our view remains the same as yesterday. We see price moving within the range of 108.20 to 108.92, the same as yesterday. Price reached a low of 108.25 overnight and we expected price to move higher to 108.75 for today. Stochastic is on the low side but MACD is still bearish. 20EMA is bearish at the moment

Support 108.15107.95107.65
Resistance 108.45108.75108.95

EUR/USD – Price has declined below 1.1130 and we expected price to drift lower to 1.1085. We do not think price will go much lower as MACD is still bullish and Stochastic is near to the oversold extreme. We expected price to be supported at 1.1085 for another push to 1.1185 later in the week.

Support 1.10951.10601.1025
Resistance 1.11301.11651.1195

GBP/USD – UK parliament rejected PM Johnson’s Brexit time line and Sterling fell. Price dropped to a low of 1.2840 and we are expecting the downside to be limited for now. MACD is showing signs of a potential low in place while Stochastic is already in the oversold extreme. If price can move above 1.2890, it can go higher to 1.2970. Below 1.2840 will call for 1.2750.

Support 1.28401.28001.2750
Resistance 1.28951.29401.2985

XAU/USD – Price was caught in the range we prescribed yesterday. Price reached a low of 1480 and is now heading higher towards 1492. A break above 1492 will likely push price higher to 1504. MACD is flat and neutral at the moment. Stochastic is rising but the gradient of its rise is rather flat. We continue to favour a range with topside at 1504.

Support 1485.751474.101462.30
Resistance 1495.601504.101516.85

NZD/USD – Price did not go beyond 0.6435, missing our sell target. Price has declined to 0.6385, which is also the 20EMA location. If price can hold above the 20EMA, we are likely to see another test of the high at 0.6435. A break below this 20EMA will push price lower to 0.6350. Stochastic is declining but MACD is still bullish.

Support 0.63850.63500.6315
Resistance 0.64100.64350.6450

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