FX Commentary – US Dollar Higher On Optimism Of Trade Resolution

Market Talk

– The United States and China are inching closer to a truce in their trade war. China President Xi said in a keynote address at annual party meeting that China needs to tighten protection of intellectual property. Financial Times reported on Tuesday that the United States is considering dropping some tariffs on China.

– The U.S. dollar rose against the yen on Tuesday on growing optimism the United States and China are on the verge of reaching a preliminary agreement to scale back their bruising trade war. Bloomberg also reported that China is reviewing locations in the United States where a so-called “Phase 1” trade deal with U.S. can be signed.

– Any progress in resolving the Sino-US trade dispute could potentially boost the dollar and riskier assets as well as ease concern about the economic outlook. This trade war has dragged on for 16 months and caused concerns of a global recession. It might reduce the need for aggressive monetary easing by central banks as well.

– China Caixin Services PMI came in at 51.1, in line with expectation. U.S. ISM Non-manufacturing due later tonight is forecast to show activity accelerated slightly in October raising optimism the U.S economy is well poised for solid, consumer-driven growth.

– Reserve Bank of Australia, as expected hold interest rate unchanged at record low of 0.75%. However RBA Governor’s Lowe said domestic uncertainty continues with household disposable income continuing to weigh on the consumer spending. Many economists are predicting the RBA to cut rate early next year to boost and sustain the domestic economy.

Chart Focus NZD/USD
Key Points
1. Sell NZD/USD recommendation
2. Sell NZD/USD at 0.6425. Stop at 0.6455 and target at 0.6370
3. Sino-US trade resolution and interest rate differential are both in the US dollar favour
4. Price could have reached a potential high with MACD warning with divergence.

Fundamental Comments
1. Sino-US trade resolution could potentially boost the US dollar.
2. Interest rate differential is in the US dollar favour.

Technical Comments
1. MACD is bearish and had warned of a potential top
2. 20EMA is bearish and price has not been able to cross above the Fibonacci 62% correction point

Key Levels

Support 0.63900.63650.6340
Resistance 0.64200.64400.6470

Technical Overview

USD/JPY – Our sell call from yesterday was stopped out as we got our levels wrong. Our direction could also be wrong with the pullback advancing beyond the Fibonacci 62% correction point. Stochastic is into the overbought extreme and MACD is still bearish. Price may test the previous high of 109.05.

Support 108.65108.30107.90
Resistance 108.95109.30109.60

EUR/USD – Price failed to test the high of 1.1180 to 1.1195 yesterday. Instead price fell on a poor Spanish PMI data. Price reached a low of 1.1112 and this could be a temporary low. We are expecting this low to hold and price to move higher to 1.1150. Stochastic is into the oversold extreme and MACD is turning up. Only a move below 1.1070 would turn the chart picture bearish.

Support 1.11051.10751.1045
Resistance 1.11501.11801.1215

GBP/USD – A break of 1.2920 has given rise to a test of 1.2840. Currently price has reached a low of 1.2875 and we think price should continue to move lower to 1.2840. MACD is still bearish but Stochastic is into the oversold extreme. 20EMA is bearish and could cap price rally at 1.2890.

Support 1.28751.28401.2805
Resistance 1.29251.29751.3010

XAU/USD – Price failed to move above 1515 and turned lower towards 1504. A price move below 1503 could move price lower to 1486.35 in a likely sideway consolidation.  MACD is still bullish but Stochastic is declining. 20EMA is starting to turn lower.

Support 1503.051494.701486.35
Resistance 1514.051524.301534.45

USD/CAD – Our view remains the same as yesterday. We think 1.3120 is likely to support a price decline and from this location price could rally back to the previous high of 1.3207. MACD is still bullish with both its lines above the zero line. Stochastic is turning up from near the oversold zone. A move below 1.3100 will negate our bullish view and call for a test of 1.3040.

Support 1.31201.30951.3045
Resistance 1.31701.32101.3240

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