FX Commentary – US Dollar Weakened By Poor US PMI

Market Talk

  • The dollar fell on Friday, paced by losses against safe-haven currencies like the yen, Swiss and gold amid fears of a global pandemic as Chinese health authorities showed little sign they have a grip on the outbreak. Rapid spread of coronavirus has raised concerns over China’s ability to contain the outbreak, which could severely curtail global growth.
  • Chinese stock and commodity markets fell heavily at the open on Monday, in the first trading session after an extended Lunar New Year break, as investors dumped risky assets in response to rising fears about the spread of a new virus across China as economists lowered their outlook for the world’s second-largest economy.
  • The safe-haven Japanese yen held near a 3-1/2 week high against the dollar at 108.41 after adding about 1.5% in the last two weeks. The risk sensitive Australian dollar, which is often traded as a liquid proxy for the Chinese yuan, tumbled 2% last week to hit a four-month trough of $0.6683. It was last up 0.1% at 0.6694.
  • U.S. data showed the on-going weakness in manufacturing did little to support the greenback. The Chicago Purchasing Managers’ Index (PMI) came in at to 42.9, well below forecasts of 48.8. That was the lowest reading since September 2015, as the slump in manufacturing activity continues.
  • Britain laid out a tough opening stance for future talks with the European Union following its exit last week, saying it would set its own agenda rather than meeting the bloc’s rules. Sentiment toward sterling may also be coloured by a stabbing incident in London on Sunday, which police described as a terrorist incident.

Chart Focus USD/JPY
Key Points
1. Sell USD/JPY recommendation
2. Sell USD/JPY at 108.85. Stop at 109.20 and profit target at 108.05
3. Spread of coronavirus and poor US PMI data are both likely to weigh on US dollar
4. Bearish price trend and bearish momentum readings are hinting of more price declines.

Fundamental Comments
1. Spread of coronavirus is likely to increase demand for safe haven JPY.
2. US PMI data which is the lowest since Sep 2015 is likely to weigh on the US dollar

Technical Comments
1. Bearish price trend is likely to be capped by falling 20EMA and could be moving lower
2. MACD and Stochastic are both bearish and hinting of more price declines.

Key Levels

Support 108.45108.05107.65
Resistance 108.85109.05109.30

Technical Overview

USD/CNH – Price has reached a high of 7.0130 this morning but despite the potential bearish divergence, we think price has the potential to move higher to 7.0280. This could be the first part of a longer term rally which could bring price to test the early December 2019’s previous high of 7.0868. We remain bullish and would look for dip for re-entry at 6.9875.

Support 7.00706.99806.9925
Resistance 7.01807.02507.0350

EUR/USD – Price may have seen a bottom at 1.0990. Since that low, we have seen price moved higher to 1.1092. Stochastic is into the overbought extreme but MACD is still bullish. We think price will see a pullback towards the 20EMA at 1.1050 which could be a good level to accumulate some longs. Only a movement below 1.1000 would negate our bullish view.

Support 1.10801.10401.1015
Resistance 1.11151.11451.1170

GBP/USD – Price reached almost the high of its range on Friday’s night at 1.3208 which was just shy of the high on 7th Jan 2020 at 1.3212. Stochastic is turning down from overbought extreme and MACD is also declining. We may see a price pullback towards 1.3115 and we see this as a buying opportunity.

Support 1.31451.31101.3070
Resistance 1.31751.32101.3250

XAU/USD – Price reached the high of the trend channel on Friday’s night and we see a decline this morning to 1579. As long as price stays within the trend channel, we remain bullish on Gold. MACD is still bullish but Stochastic is starting to give bearish signals. We see support at 1565 to 1562 which could trigger another rally to 1593.

Support 1570.701563.301551.10
Resistance 1580.101588.901611.00

GBP/CHF – Last Friday, we had a buy call on this pair. Price has gone up to 1.2756 on Friday night but without reaching our buy target price. This morning, price dropped below 1.2700, filling our order. Price needs to hold above the 20EMA for it to rally to 1.2760 again. Keep stop at 1.2665 and profit order at 1.2760. Both Stochastic and MACD are moving down which is not a good sign.

Support 1.26651.26301.2595
Resistance 1.27051.27551.2790

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