FX Commentary – Safe Havens Ditched On Growing Risk Appetite

Market Talk

  • The dollar extended gains on Wednesday with risk appetite growing, underpinned by stronger-than-expected U.S. economic data overnight and a broad unwinding of safe-haven positions as China’s responses to the coronavirus outbreak supported investor confidence, even as deaths and new cases climbed.
  • The dollar racked up gains against yen and Swiss franc as investors ditched safe havens on easing fears about the coronavirus impact on global economic following fresh stimulus measures from China with 1.7 trillion yuan injected into the financial system with reports that more stimulus are likely to follow.
  • Caixin Services PMI came in at 51.8 against an expectation of 52.0 for Jan despite the coronavirus outbreak. With government stimulus to lessen the economic impact, market hopes that China and global economic impact will be limited.
  • US factory orders rose 1.8% in December, topping economists’ forecasts for a 1.2% rise, marking the largest gain since August 2018. Factory orders for the month were driven by strong demand for defence aircraft, but weak capital expenditure kept gains in check.
  • Sterling clawed back some of its losses from a day earlier, on economic data showing better-than-expected construction activity in January. The rise in the pound comes despite on-going worries that the U.K. and EU may be headed for a clash on trade following Brexit agreement.

Chart Focus NZD/USD
Key Points
1. Buy NZD/USD recommendation
2. Buy NZD/USD at 0.6475. Stop at 0.6440 and profit target at 0.6540
3. Growing risk appetite adopted by market and poor showing by Democratic candidate Biden are both bad news for US dollar.
4. Price has broken above a consolidation pattern with bullish MACD is a hint of a possible price bottom.

Fundamental Comments
1. Growing risk appetite adopted by the market could be good news for the NZ dollar
2. Good showing by progressive Democratic and poor result of Joe Biden is bad news for Wall Street.

Technical Comments
1. Price has broken out of a bottom consolidation pattern which is a sign of a possible reversal in trend
2. MACD has been giving bullish divergence, warning of a possible price bottom in the making.

Key Levels

Support 0.64750.64450.6405
Resistance 0.65000.65400.6580

Technical Overview

USD/JPY – Our short position was stopped out this morning at 109.20 as risk appetite grows and led to a broad unwinding of safe havens. Fibonacci 62% of the decline from 110.30 to 108.23 is currently capping the rally. Price will need to move above this Fibonacci point to reverse the bearish trend. While MACD is bullish, Stochastic is near to the overbought extreme, hinting of a limited upside.

Support 109.30108.90108.45
Resistance 109.65109.95110.25

EUR/USD – Our buy call yesterday was filled at 1.1050. Price is currently lower but our view remains unchanged. Keep stop at 1.1020 and profit at 1.1120. MACD is turning around and is still bullish. Stochastic is near to the oversold extreme, hinting of a limited downside. Price needs to hold its decline at current support of 1.1130 to have a chance of a reversal.

Support 1.10201.09901.0965
Resistance 1.10501.10801.1115

GBP/USD – Price broke the consolidation support at 1.2960 but had only a limited decline to 1.2938 before bouncing higher to 1.3046. We think the rally is weak and is likely to be capped. We see a price decline below 1.2938 in the next 48 hours. MACD is bearish and continues to move lower. Stochastic is weak and is turning down after moving just above the oversold extreme

Support 1.30051.29751.2945
Resistance 1.30451.30801.3140

XAU/USD – Price broke below the 3-week trend channel and moved to a low of 1548.95. Price is recovering and could move towards the 20EMA point at 1568.30. This could be a good point to get into a short position as we believe price should continue towards the low of 1535. Stochastic is hinting of limited downside but MACD is now bearish.

Support 1554.901547.501535.70
Resistance 1563.401572.101580.10

EUR/JPY – Price broke out of a 7-day range consolidation yesterday and moved to a high of 120.97 overnight. We see price support at 120.60 to halt any price correction and from this level, another rally to 121.05 to complete the breakout and rally. Stochastic is near to overbought extreme but MACD is still bullish and moving higher. Lift stop higher to 120.40 while keeping target at 121.05.

Support 120.50120.20119.75
Resistance 120.85121.05121.30

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