FX Commentary – Yuan Weakens As Coronavirus Spread

Market Talk

  • Investors were selling the offshore yuan as the onshore yuan market remained closed and the Australian dollar as a proxy for risk on China. The yuan was mired near its weakest level in a month at 6.9813, in offshore trade on Tuesday as heightened anxiety about the economic impact of a deadly new coronavirus in China battered riskier assets.
  • The Japanese yen, considered a safe-haven, traded near a three-week high versus the dollar at 108.72 as investors nervously watched the death toll from the virus climb to more than 100. Global equity markets declines have also contributed to demand for safe haven JPY, CHF and Gold.
  • The Australian dollar traded at $0.6754, close to a three-month low while the New Zealand dollar was quoted at $0.6541 after falling on Monday to its lowest since mid-December. Both countries have extensive trade ties with China, with tourism and education especially vulnerable to disruption from the virus.
  • The European Union warned UK, it will never compromise on the integrity of its single market, saying London must now face reality after underestimating the cost of leaving, sending  the British pound lower to 1.3040 against the US dollar.
  • Officials from the U.S. central bank are scheduled to meet on Tuesday and Wednesday. They are expected to reiterate the Federal Reserve’s desire to keep rates unchanged at least through this year.

Chart Focus USD/CNH
Key Points
1. Buy USD/CNH recommendation
2. Buy USD/CNH at 6.9440. Stop at 6.9300 and target at 6.9890
3. Extended shutdown of business and extension of holiday are both likely to impact the Chinese economy.
4. Price is likely to find support at 20EMA or gap opening with MACD still hinting of a bullish trend.

Fundamental Comments
1. Wuhan coronavirus is likely to impact the Chinese economy as the Chinese government extends holiday
2. Extended shutdown of business in China is likely to impact the Chinese economy

Technical Comments
1. Price support at 20EMA and a gap opening could propel price higher in the next round of rally
2. MACD is still bullish with both its lines above the zero line

Key Levels

Support 6.96106.94406.9210
Resistance 6.98006.98957.0130

Technical Overview

USD/JPY – From the high of 110.30, price has declined to 108.72, which is near to the Fibonacci 62% correction point of the rally from 107.63 to the high at 110.30. If price can stay above this low, price is likely to move higher again to 109.70 but if support at 108.72 fails, price is likely to test the low of 107.70 again. Both MACD and Stochastic are hinting of possible low in place

Support 108.85108.45108.05
Resistance 109.20109.65110.00

EUR/USD – Price has continued to decline and has reached a low of 1.1009 overnight. Price could be close to a potential decline’s low as the Fibonacci 161.8% projection point comes in at 1.0990. Stochastic is also in the oversold zone and MACD is warning of a possible reversal as well. Wait for confirmation of the reversal.

Support 1.10101.09901.0955
Resistance 1.10401.10751.1115

GBP/USD – Price tested the topside of the range at 1.3175 last Friday but has decline to 1.3040. We think the decline is likely to continue for the next couple of days to the base at 1.2960. MACD has turned bearish now. It is a hint of more price declines. Stochastic is in the oversold extreme and is weak at the moment. 20EMA is pointing lower to 1.2960.

Support 1.30201.29901.2955
Resistance 1.30651.31051.3150

XAU/USD – Price reached a high of 1588.30, which exceeded the Fibonacci 62% correction point of the decline. At this point, we have no clear signal which side the next direction will be. If price is capped at 1588, we think price could be heading back to 1536 again. If price can move above 1588, the next price target would be 1611. While MACD is still bullish, Stochastic is hinting a bearish trend ahead.

Support 1575.751566.801556.50
Resistance 1588.301595.051611.30

AUD/USD – Price has declined to a low of 0.6745 and we think the market is overstretched at the moment. Price is likely to do a correction which could price higher to 0.6800. Stochastic is deeply oversold and could be moving up. MACD is still bearish but could be moving up in correction as well.

Support 0.67450.67100.6690
Resistance 0.67750.68000.6845

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