FX Commentary – Legislation Threatens China-U.S. Trade Deal

Market Talk

– Safe-havens rose against the dollar after U.S. President Donald Trump signed into law legislation supporting anti-government protesters in Hong Kong, fueling concerns that efforts to end the long-running trade dispute between the world’s two biggest economies could become more complicated.

– Yen’s strength was curbed by Japan’s retail sales which tumbled at their fastest pace in more than four and a half years in October as a sales tax hike prompted consumers to cut spending.

– U.S. economic growth picked up slightly in the third quarter. While the number of Americans filing applications for unemployment benefits fell last week, new orders for key U.S.-made capital goods increased by the most in nine months in October and shipments rebounded, suggesting some stabilization in business investment.

-Gold rose on Thursday as investors bought the safe-haven metal amid new doubts an imminent trade agreement between the United States and China will be concluded after President Trump signed legislation supporting protesters in Hong Kong, irking Beijing.

– China’s reaction will be monitored as investors try to gauge how much impact U.S. support of anti-government protests in Hong Kong will have on negotiations to scale back a 16-month long trade war between the world’s two-largest economies. Many see the U.S. legislation as symbolic, but it has the potential, if implemented, to upend relations between the U.S. and China.

– There will be no Daily FX Commentary report on Friday.

Chart Focus AUD/JPY
Key Points
1. Sell AUD/JPY recommendation
2. Sell AUD/JPY at 74.05. Stop at 74.40 and target at 73.45
3. US legislation supporting anti-government protesters in Hong Kong raise concerns and risk which could drive AUD/JPY lower
4. Price has a reversal Spinning Top candlestick pattern and momentum indicators are hinting of further price declines

Fundamental Comments
1. Trump signed into law legislation supporting anti-government protesters in Hong Kong, fueling concerns an imminent trade agreement can be reached.
2. Risk and uncertainty increased as a result and AUD/JPY is the most sensitive to risk

Technical Comments
1. Price had reached the top boundary of a range and a Spinning Top candlestick price pattern is hinting of a reversal
2. Stochastic and MACD are both turning down which is hinting of a price decline

Key Levels

Support 73.8573.6573.45
Resistance 74.1574.3574.55

Technical Overview

USD/JPY – After almost 8 days in a 100 pips range, price has moved above 109.30. We believe price is likely to continue higher towards 109.80 as long as price is able to stay above 109.00. Stochastic is in the overbought extreme. However MACD is bullish and strong with both its lines above the zero line. 20EMA is rising and its gradient is steep, hinting of a bullish trend.

Support 109.30108.95108.45
Resistance 109.60109.95110.20

EUR/USD – Price reached a low of 1.0992 overnight, missing our profit order at 1.0990. We would suggest closing the position at current 1.1008. MACD is starting to show potential bullish divergence, which is a warning of a possible bottom in the process of forming. A move above 1.1035 would confirm a reversal and a new bullish trend.

Support 1.09901.09601.0930
Resistance 1.10301.10501.1090

GBP/USD – Yesterday, we had lowered our stop order to cost at 1.2875. Our stop was triggered and we are out without a loss. Price has moved higher to 1.2930 and we think the rally will continue towards 1.2970 or 1.2985. A break of this zone will open up 1.3015. This movement is possible as Stochastic and MACD are both still rising and has not reached their extreme levels as yet.

Support 1.29151.28701.2835
Resistance 1.29701.30151.3045

XAU/USD – Gold reached a low of 1452.40 overnight and has bounced higher to 1458.15. Price seems to be consolidating and there is a possibility the big correction from the high of 1556 in early Sep may not be over as yet. On the 4-hourly chart, momentum is inconclusive at the moment. We are expecting sideways movement from 1445 to 1478 in the next few days. Wait for better trading idea.

Support 1452.401445.501438.20
Resistance 1463.801478.701486.15

AUD/NZD – Yesterday, we had recommended a buy for this pair. Our order was filled as price is at 1.0527. Our view remains unchanged but we have causes for concerns as both Stochastic and MACD has not yet turned up but continued to slide lower. 20EMA is also continuing its downward movement. Keep stop at 1.0495 and profit order at 1.0640.

Support 1.05151.04901.0460
Resistance 1.05501.05751.0610

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