FX Commentary – Sterling Decline On Trade Deal Fears

Market Talk

  • The US dollar climbed on Monday, after data showing manufacturing activity expanded in January for the first time in six months, while the British pound slumped amid fears the U.K and European Union could clash on trade.
  • Report from the Institute for Supply Management (ISM) reported that U.S. factory activity unexpectedly rebounded in January after contracting for five straight months amid a surge in new orders. ISM Manufacturing PMI came in at 50.9 against expectation of 48.5.
  • The U.S. Commerce Department on Monday finalized a new rule to impose anti-subsidy duties on products from countries that it has determined undervalue their currencies against the dollar, including potentially China.
  • Concerns about a widening coronavirus outbreak in China as the number of cases and deaths showed little sign of slowdown kept the yuan and the Australian dollar subdued. However, both Yuan and Aussie managed to recover from overnight low in Tuesday’s morning trades.
  • Sterling fetched $1.2999, having lost 1.54% on Monday on renewed worries about Britain’s relations with the European Union. Prime Minister Boris Johnson set out tough terms for Brexit talks with the European Union, rekindling fears Britain would reach the end of an 11-month transition period without agreeing a trade deal.

Chart Focus EUR/USD
Key Points
1.  Buy EUR/USD recommendation
2. Buy EUR/USD at 1.1050. Stop at 1.1020 and profit target at 1.1120.
3. A better Eurozone PMI and good showing by progressive Democratic challengers are both weighing on the US dollar
4. Price supported at 20EMA and Fibonacci 38% together with bullish MACD is a hint of further price rally ahead.

Fundamental Comments
1. A better Euro zone PMI gives hope of a bottoming of the Euro zone economy
2. Good showing by progressive Democratic challengers is bad news to Wall Street.

Technical Comments
1. Price is supported by the 20EMA as well as Fibonacci 38% of the rally from 1.0990 to 1.1094.
2. MACD is bullish and could be turning up soon

Key Levels

Support 1.10501.10151.0990
Resistance 1.10801.11151.1145

Technical Overview

USD/JPY – Our sell call was filled this morning at 108.85. Keep stop at 109.20 and profit target at 108.05. MACD is still bearish but Stochastic is rising. We view these momentum indicators reading as a correction of a bearish trend. Once the correction is over, we expected this pair to decline again to 108.05.

Support 108.45108.05107.65
Resistance 108.90109.30109.65

EUR/JPY – Price could be moving out of a 7-day trend channel and if price do break above this channel, price is likely to move higher to 121.05. MACD has turning bullish and is moving higher. Stochastic is also moving higher towards the overbought extreme. 20EMA is also starting to turn bullish. Watch the breakout at 120.45.

Support 120.05119.75119.40
Resistance 120.45120.80121.05

GBP/USD – Price had declined to the previous low at 1.2974 but MACD is still bearish. However, Stochastic is near to oversold extreme. We think that if price is able to hold above support at 1.2970, there is a good chance of a price recovery 1.3060. A break below 1.2970 would start a bearish trend after moving out of a 3-week consolidation.

Support 1.29751.29451.2905
Resistance 1.30251.30801.3140

XAU/USD – Price is moving towards the lower end of the trend channel and a break and move below 1563 would end a 3-week bullish trend channel and call for a movement to 1535. Stochastic is moving lower but MACD is still bullish. However MACD is rather flat and not hinting of a strong trend. Watch the trend line support 1563 for clue to the next directional movement.

Support 1570.701563.301551.10
Resistance 1580.101588.901592.05

USD/CNH – Price moved to a high of 7.0230 and we have seen a decline to 6.9940. We think the correction has started and our view remains the same as yesterday. We are looking for a pullback to 6.9875 or 6.9700. Stochastic is hinting of more price declines. MACD is still bullish at the moment. This decline is likely to be corrective in nature and the longer term trend remains bullish.

Support 6.98756.98106.9710
Resistance 7.00157.00707.0130

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