FX Commentary – European PMI Is Likely To Set Euro Direction

Market Talk

Currency market was dominated by US-China trade rhetoric, with China playing down possible disagreements before a WSJ’s report, indicating that both sides may be looking towards another round of face-to-face talks. That helped to keep risk trades from sinking after the overnight pessimism with hopes of a deal still fueling traders and investors’ appetite for now.

The Wall St Journal, citing unnamed sources reported that that China has invited US trade negotiators for a new round of face-to-face talks in Beijing. However, it is said that the US camp is a bit reluctant to make the trip unless China makes clear that it would make commitments on IP protection, forced technology transfer and agricultural purchases.

Gold prices held steady on Thursday, supported by concerns that U.S. legislation on Hong Kong could increase tensions between the United States and China and delay an interim trade deal but its gains were capped by minutes of FOMC minutes which hinted of a pause in US interest rate cut.

The Canadian dollar dropped half a percent after Bank of Canada Governor Poloz commented that monetary conditions are “about right” given the current Canadian economic condition, pouring cold water on a possible Canadian rate cut. The market had begun to price in a 25% chance of a rate cut in December. Canadian employment data had earlier sent USD/CAD to a high of 1.3328.

Today will be a big day for the Euro currency. European PMI data will be released starting from 3pm in the afternoon. EUR/USD has been in a tight range of 46 pips since the start of trading on Monday to this morning.  PMI should set a direction for the Euro currency. 

Chart Focus EUR/USD
Key Points
1. Sell EUR/USD recommendation
2. Sell EUR/USD at 1.1070. Stop at 1.1105 and target at 1.0990
3. Poor German data and interest rate differential are both weighing against the Euro currency
4. A mini Double Top chart pattern with MACD bearish divergence is a hint of a downside reversal

Fundamental Comments
1. Poor German data on Wednesday is likely to weigh on the Euro currency
2. Interest rate differential is in the US dollar favour

Technical Comments
1. The is a mini Double Top chart pattern
2. MACD is showing a bearish divergence and hinting of an impending down side movement

Key Levels

Support 1.10501.10151.0990
Resistance 1.10901.11251.1150

Technical Overview

USD/JPY – For 4 consecutive days, price had stayed within the previous week 100 pips range. Last night price tested the lower end of the range and this morning price has bounced off the low. Our view remains unchanged. Unless the range boundary is breached, price is likely to continue within this range. Momentum indicators are inconclusive at the moment.

Support 108.50108.25107.90
Resistance 108.85109.05109.30

EUR/AUD – Our sell call was filled at 1.6285 when price reached a high of 1.6300. This morning there was another push above 1.6300 but price is now below 1.63. We viewed the 2nd push as a retest which failed and we think price should now be on the way down. MACD is neutral and flat around the zero line. Stochastic has a bearish crossover and is moving lower.

Support 1.62651.62351.6210
Resistance 1.63051.63251.6365

GBP/USD – Price reached our target of 1.2970 and we saw a sharp decline back to the base at 1.2890. The down trend is likely to continue after a pause to correct the sharp decline. We see price resistance at 1.2925, which is where the 20EMA resistance as well.  Stochastic is into the oversold extreme but MACD is still bearish and hinting of another decline to come.

Support 1.28851.28301.2770
Resistance 1.29251.29701.3015

XAU/USD – Price has been unable to move beyond 1478. Price tried to break above the 1475 resistance four times this week without success. Stochastic is starting to trend down. MACD is turning flat and be neutral. We think there is a high risk of a support break and a price move towards 1456. A move would 1479 would negate our bearish view.

Support 1456.551445.501438.20
Resistance 1478.701486.151500.65

USD/CAD – BoC Governor Poloz’s comment helped the Canadian dollar to strengthen but price is now supported at the 20EMA as well as the previous resistance turned support level. While Stochastic is still declining, MACD is still bullish and could be turning up. We think price is likely to be supported at 1.3270 and we could see another test of 1.3330 again.

Support 1.32701.32451.3190
Resistance 1.33101.33451.3380

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