FX Commentary – Focus On Middle East

Market Talk

  • Safe havens hold ground against the dollar on Tuesday as traders sought save-havens amid heightened anxiety about potential Iranian retaliation to a U.S. drone strike that killed its most prominent military commander last week.
  • The yen, pulled back from a three-month high versus the dollar and Gold traded at $1,564.16 per ounce, just below a near seven-year high of $1,579.72 reached on Monday but sentiment remains fragile due to the increasing worries about armed conflict between the United States and Iran.
  • The U.S. currency also nursed losses against the Euro and Sterling. The British pound was trading at $1.3164 ahead of a crucial week when British lawmakers are due to reconvene to debate the Brexit deal Prime Minister Boris Johnson has agreed with Brussels.
  • A survey on Monday showed Euro zone business activity remained close to stagnation in December, as an upturn in services activity only partially offset a continued decline in the bloc’s manufacturing sector. In the U.K., a similar survey showed similar reading.
  • Last night Markit US services PMI for December was 52.8 versus 52.2 forecast and tonight at 10.45pm US ISM Non-manufacturing PMI will confirm the state of the US economy.

Chart Focus XAU/USD – Gold
Key Points
1. Buy Gold recommendation
2. Buy Gold at 1555.10. Stop at 1545.50 and target at 1577.50
3. Middle East tensions and worries over retaliation by Iran are likely to keep Gold in demand
4. Price inability to close a gap and bullish MACD are hints of another price rally

Fundamental Comments
1. Middle East tensions are likely to benefit safe haven Gold
2. Worries over retaliation by Iran is likely to keep safe have in demand

Technical Comments
1. Price ability to stay above the gap is a sign of a pullback in a bullish trend
2. MACD is still bullish and could be turning up from the Zero line.

Key Levels

Support 1555.601546.051540.95
Resistance 1569.501579.201586.90

Technical Overview

USD/JPY – Price reached a low of 107.75 on Friday and price has rallied higher to 108.50, higher than our forecast of 108.30. We think the rally is over and we think price is likely to move lower to 107.75 again in the next few days. MACD is still bearish and the fast line is showing signs of declining while Stochastic has reached the overbought extreme.

Support 108.20107.75107.35
Resistance 108.50108.85109.10

EUR/USD – Price may have completed a correction to 1.1205 and if this is the scenario, price is likely to decline to 1.1125 again. If price extends beyond 1.1205, it is likely to test the high at 1.1240. We favour the down side as both Stochastic and MACD are likely to decline and showing a bearish price trend.

Support 1.11801.11501.1120
Resistance 1.12051.12051.1285

GBP/USD – Price was supported at 1.3050 and has rallied higher to 1.3175. If price can stay above 1.3100, price is likely to test 1.3286 again.  However if price is unable to hold above 1.3100, it can move lower to test 1.3050 and maybe lower to 1.2905. Stochastic is rising but MACD is showing an opposite bearish view.

Support 1.31351.31051.3050
Resistance 1.31751.32151.3260

EUR/JPY – Yesterday, we had recommended selling EUR/JPY but unfortunately, we were stop out of this trade late last night. Our view remains unchanged and if price remains below 121.70, there is still a high chance that price could be moving lower again to 120.15. MACD is still bearish.

Support 121.05120.75120.40
Resistance 121.45121.70122.10

USD/CAD – Yesterday, we had lowered the stop loss lower to 1.3010 while keeping profit objective at 1.2950. We are recommending bringing stop lower for today to 1.2990 while keeping profit objective unchanged at 1.2950. Stochastic has reached the oversold extreme and MACD is turning neutral. These are signs that a bottom may be near.

Support 1.29501.29151.2880
Resistance 1.29801.30101.3045

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