FX Commentary – Middle East Tensions Sent Gold Higher

Market Talk

  • The dollar shook off recent weakness caused by a pause in Fed interest rate policy on Friday as dismal economic data from Europe and the UK overnight weighed on the Euro and British pound, helping the US dollar to recover from a 6-month low.
  • PMI final manufacturing survey showed British factory output fell in December at the fastest rate since 2012, sending the British pound from a high of 1.3266 to a low of 1.3115.
  • European PMI manufacturing data were all below the 50% mark except for France with the German data at 43.7, clearly below the 50 level that separates growth from contraction, highlighting the manufacturing situation all over Europe.
  • The dollar was weaker at 6.9593 Yuan in offshore trading, continuing the trend, having trended lower since a high of 7.0867 in early Dec. 2019. Fresh economic stimulus by the PBOC yesterday also helped the Chinese Yuan.
  • Gold prices on Thursday began the year with a healthy start, boosted by doubts surrounding the strength of Wall Street’s rally after tension in the Middle East. Iraqi TV reported on Friday that a top Iranian commander was killed in a US air strike on Baghdad.

Chart Focus USD/CAD
Key Points
1. Trading Sell recommendation on USD/CAD
2. Sell USD/CAD at 1.3005. Stop at 1.3040 and target at 1.2950
3. An increase in crude oil price and a possible trade agreement between US-China is likely to benefit the Canadian dollar
4. Price resistance at 1.3008 with MACD bearish hinting of another bearish price move.

Fundamental Comments
1. An increase in crude oil price is benefiting the Canadian dollar
2. A possible signing of phase one deal between US-China is likely to weigh on the US$

Technical Comments
1. Price is capped by the 20EMA resistance as well as a price resistance at 1.3008
2. MACD is bearish and could be turning down, indicating another bearish price move

Key Levels

Support 1.29751.29501.2925
Resistance 1.30051.30451.3085

Technical Overview

USD/JPY – With tensions in the Middle East, there is a possibility of safe haven Jap Yen strengthening further today to 107.75. Stochastic and MACD are both trending lower which should keep price on the bearish trend. 20EMA is bearish and its gradient is steep, which is a hint of a strong bearish trend. Keep shorts for 107.75

Support 108.00107.75107.35
Resistance 108.25108.45108.85

EUR/USD – Price dropped to a low of 1.1162 overnight and we are expecting the decline to continue towards 1.1150 for today. Stochastic is starting to turn down and MACD is still bearish with both its line below the zero line. 20EMA also capped price advance this morning at 1.1178. Keep shorts for a test of 1.1150.

Support 1.11501.11301.1105
Resistance 1.11801.12051.1240

GBP/USD – Price was unable to move above the Fibonacci 62% correction point at 1.3286 and has declined lower to 1.3110 today. The decline may not be over as yet and is likely to head lower to 1.3050. Stochastic is moving lower towards the oversold zone and MACD is also moving lower.

Support 1.31051.30701.3040
Resistance 1.31401.31751.3215

XAU/USD – Price broke above 1525 and has rallied to a high of 1544. The next target would be at the early Sep 2019 high at 1556. MACD is still bullish and rising but Stochastic is deep into overbought extreme. 20EMA is also bullish and its gradient steep, which is a hint of a strong bullish trend.

Support 1538.251530.501520.90
Resistance 1545.901556.851577.90

AUD/USD – Our sell call was filled yesterday. Price has declined to 0.6960. We would recommend bringing stop lower to 0.6990 and keeping profit target at 0.6950. There is potential for a price decline to 0.6935 as well. Stochastic and MACD are both still declining although MACD is still bullish at the moment.

Support 0.69500.69350.6910
Resistance 0.69800.70050.7030

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