Market Talk
- The dollar struggled to find its footing on Thursday, amid mixed U.S. economic data and a sharp decline against the pound after the Bank of England held rates steady in the wake of firmer economic data.
- Sterling gained on Thursday after the Bank of England held interest rates at 0.75%, defying money markets that had seen a 50% probability of a cut to help the economy. Investors are also wary as Britain officially leaves the European Union on Friday, setting the clock ticking on an 11-month deadline to reach a trade agreement with the EU.
- The dollar took a slight knock overnight when data showed the U.S. economy grew at its slowest annual pace in three years in 2019 and personal consumption weakened sharply. Commerce Department said GDP increased at a 2.1% pace in the fourth quarter of last year in its advance estimate on Thursday, in line with forecasts.
- Safe-haven demand continued to underpin the yen and Swiss franc as the death toll from the coronavirus outbreak rose past 200, raising fears about the potential impact of the disease on global growth. Fears of a pandemic intensified somewhat after Centres for Disease Control reported the first person-to-person transmission of the coronavirus in the U.S., which now has six confirmed cases.
- Chinese PMI manufacturing activity came in as expected in January at 50.0 against expectation of 50.1 while services actually firmed, coming at 54.1 against expectation of 53.1, though this was likely before the Wuhan coronavirus took full hold.
Chart Focus GBP/CHF
Key Points
1. Buy GBP/CHF recommendation
2. Buy GBP/CHF at 1.2700. Stop at 1.2665 and target at 1.2760
3. BOE left rates unchanged and WHO’s endorsement of China has led to less demand for safe haven Swiss
4. Price breaking out of a Double Bottom chart pattern with bullish MACD and Stochastic is sign of a price rally.
Fundamental Comments
1. Bank of England left rate unchanged overnight and this should be good for Sterling.
2. WHO’s endorsement of China to contain the virus has reduced market risk leading to less demand for safe haven Swiss Francs.
Technical Comments
1. Price broke above a Double Bottom chart pattern
2. MACD is bullish and Stochastic is rising.
Key Levels
| Support | 1.2695 | 1.2665 | 1.2630 |
| Resistance | 1.2725 | 1.2760 | 1.2790 |
Technical Overview
USD/JPY – Price resistance lies at 109.30 and if price is unable to move above this point, we see price going lower to test the base first at 108.70 and later at 107.60. Price tested the first support at 108.70 but has bounced up to 109.10. The second target may not be attainable. We see range for today. MACD is still bearish but Stochastic is turning up now.
| Support | 108.85 | 108.45 | 108.05 |
| Resistance | 109.30 | 109.65 | 110.00 |
EUR/USD – Price managed to recover from the 1.0990 low but the recovery to 1.1038 looks weak. Stochastic has reached the overbought extreme and has a bearish crossover. Stochastic could be moving lower. MACD is still bearish at the moment. If price is unable to move above 1.1040, we think price is likely to test 1.0990 again.
| Support | 1.1015 | 1.0985 | 1.0955 |
| Resistance | 1.1040 | 1.1080 | 1.1115 |
GBP/USD – There was a Double Bottom low at 1.2975 and after BOE left rates unchanged, Sterling has rallied to a high of 1.3108. We think price has tested the low and could be heading higher to test the high of the range at 1.3175. Stochastic is into overbought extreme but MACD is still bullish and climbing. 20EMA is bullish and rising at the moment.
| Support | 1.3070 | 1.3030 | 1.2990 |
| Resistance | 1.3110 | 1.3140 | 1.3175 |
XAU/USD – Our buy call was not filled overnight. There is a possibility of a Double Top chart pattern forming with the neckline at 1563.20. MACD is flat and neutral at the moment. Stochastic has a bearish crossover and is moving lower. We think price is likely to test the neckline over the next couple of days. Watch the reaction at the neckline
| Support | 1570.70 | 1563.30 | 1551.10 |
| Resistance | 1580.10 | 1588.90 | 1611.00 |
USD/CNH – Price reached a high of 7.0030 twice overnight and has declined below the previous high of 6.9895. Price is currently supported by the 20EMA at 6.9740. Stochastic has a bearish crossover and is moving lower. MACD is still bullish but has a bearish divergence warning. Price could be heading lower to Fibonacci 38% of the advance at 6.9430 over the next few days.
| Support | 6.9740 | 6.9665 | 6.9430 |
| Resistance | 6.9880 | 6.9970 | 7.0030 |
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