FX Commentary – As UK Election Draws Near

  • The dollar and yen held the safe-haven high ground on Tuesday, with investors on edge as the clock ticks down to the Dec 15 new tariff deadline, the UK election on 12 December and upcoming ECB and U.S. central bank meetings over the next 2 days.
  • China was reported to have purchased 5 cargoes (300,000 ton) of soybeans from the US above an earlier report of two cargoes (120,000 ton). There are also unconfirmed reports that China is preparing for the December 15 tariffs to be enacted with the purchases. Or is this a trade concession with the US?
  • Sterling hit seven-month highs amid growing confidence about a Conservative Party victory in Thursday’s U.K. elections, which would end political paralysis on Brexit. Fears over the prospect of a hung parliament receded after an opinion poll on Monday showed that the Conservative Party extended its lead over the Labour Party to 14 percentage points, up from 9 percentage points a week ago.
  • Eurozone December Sentix survey reading comes back up to positive territory +0.7 against forecast of negative 5.3 for the first time since May as economic sentiment surrounding the euro area economy continues to pick up in the final few months of the year amid some green shoots recently.
  • China reported a higher CPI at 4.5% while PPI was negative 1.4%. This huge disparity between consumer and producer level inflation expectations could be caused by pork price rises. PPI is showing disinflationary pressures are still prevalent and the Chinese economy is still weak.

Chart Focus EUR/JPY
Key Points
1. Sell recommendation on EUR/JPY
2. Sell EUR/JPY at 120.30. Stop at 120.65 and target at 119.65
3. With Dec 15 deadline approaching, trade deal optimism fading and a weak Chinese economy, safe haven JPY is likely to be preferred to the Euro.
4. Price is capped by resistance from 20EMA and a previous trend line and MACD is bearish and hinting of further price decline.

Fundamental Comments
1. With Dec 15 deadline approaching and optimism of a deal fading, safe haven JPY is likely to be in demand over the Euro
2. A weak Chinese economy is likely to weigh on the global economy and safe JPY is likely to be in demand

Technical Comments
1. Price is capped by a declining 20EMA as well as a previous trend line acting now as resistance
2. MACD is still bearish and the fast line may be turning down

Key Levels

Support 119.95119.60119.25
Resistance 120.30120.60120.95

Technical Overview

USD/JPY – Price is capped by a declining 20EMA at 108.65 on the upside and on the down side, price is supported at 108.40. A range is forming between these 2 critical points. A move above 109.00 would create a Double Bottom chart pattern and a movement to 109.70. If price breaks the support at 108.40, price is likely to decline to 107.90.

Support 108.40107.95107.60
Resistance 108.75109.00109.40

EUR/USD – Price was capped by a 20EMA yesterday and if price is unable to move above 1.1070, today we are likely to see a decline to 1.1000. MACD has turned bearish with both its lines below the zero line and Stochastic has a bearish crossover, hinting of further price declines. Above 1.1080 would negate our bearish view

Support 1.10351.09901.0960
Resistance 1.10751.10951.1115

GBP/USD – Price has failed to move above 1.3195 but has managed to hold around the support at 1.3140 which is also where the 20EMA support line lies.  MACD is still bullish and could be turning up again above the zero line. We think price can test the high of 1.3195 again. A move below 1.3100 would negate our bullish view.

Support 1.31551.31051.3065
Resistance 1.31951.32251.3265

XAU/USD – Price tested the 20EMA resistance at 1465 yesterday but was unable to sustain. Price seems to be consolidating around the 1458 to 1465 levels. The next direction will likely be determined by the breakout of this level. Stochastic is neutral above the oversold extreme but MACD is still bearish with both its line below the zero line.

Support 1458.501445.501438.20
Resistance 1465.201479.401484.10

NZD/USD – Price reached a high of 0.6567 and our sell order was filled. Stochastic is starting to turn up again before even reaching the oversold extreme and this is a sign of a strong buying interest. MACD is still bullish. Price was also supported by the 20EMA. We are not hopeful of this trade. Keep stop at 0.6585 and profit target at 0.6480.

Support 0.65400.64950.6460
Resistance 0.65800.66200.6660

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