FX Commentary – US$ Near 2-week High Vs Yen Despite Coronavirus

Market Talk

  • The dollar traded near a two-week high versus the yen on Friday on upbeat U.S. jobless claims ahead of key Non-farm payroll data later tonight, but the spread of a new coronavirus in China remains a risk to financial markets.
  • The dollar was helped by better-than-expected US jobless claims data, underpinning investor hopes for a robust nonfarm payrolls report due later tonight. US jobless claims dropped by 15,000 to a seasonally adjusted 202,000, beating economists’ forecast for a drop to 215,000.
  • The Yuan held onto slim gains versus the dollar in offshore trade on hopes Chinese stimulus would lessen the economic impact of the Wuhan epidemic, but the rising death toll has kept investors on edge.
  • European Central Bank Governor Christine Lagarde reinforced expectations that the central bank’s ultra-loose monetary measures will remain in place at least until the end of the year, keeping the Euro weak against the US dollar.
  • The U.K. and EU are slated to get trade talks underway only in March, but tough rhetoric from both sides has raised fears that rough negotiations lie ahead. Persistent worries about negotiations between Britain and the European Union for a post-Brexit trade deal is keeping the pound on the back foot against the dollar on Thursday.

Chart Focus USD/CNH
Key Points
1. Buy USD/CNH recommendation
2. Buy USD/CNH at 6.9570. Stop at 6.9350 and target at 7.0130
3. Spread and death toll together with likely decrease in China’s GDP are likely to weigh on the CNH
4. Price support with both momentum indicators hinting of further price rally is a hint of price rally ahead

Fundamental Comments
1. Increasing spread and death toll from Wuhan virus are likely to weigh on the CNH
2. Wuhan virus is likely to reduce GDP number for Chinese economy which is likely to weigh on the CNH

Technical Comments
1. Strong price support is likely to provoke a rally in the USD/CNH
2. Stochastic and MACD indicators are turning up, hinting of more price upsides ahead

Key Levels

Support 6.97256.96456.9525
Resistance 6.98656.99607.0070

Technical Overview

USD/JPY – Price continues to move higher, reaching a high of 110.02 this morning.  Stochastic is into the oversold extreme and could be turning down but MACD is still hinting of a bullish trend. We think the upside could be limited for now and we see a price correction down to either 109.50 or 109.30. A move below 109.00 would mean a deeper correction ahead.

Support 109.70109.30108.90
Resistance 110.15110.60111.05

EUR/USD – Price broke below 1.0990 overnight to reach a low of 1.0964. Stochastic is in the oversold extreme and MACD is moving higher. This could be a temporary low and a price correction to 1.1020 is likely. The longer term trend is bearish and we stick to our view of 1.0880 over the next few days.

Support 1.09651.09351.0880
Resistance 1.09901.10251.1050

GBP/USD – Price tested 1.2938 last night and moved to a low of 1.2921. Stochastic is into the oversold extreme at the moment and could limit price decline. MACD has a bullish divergence waning of a possible bottom in the making. We think price decline could be contained above 1.2895 and we see a price correction higher to 1.3000. Our longer term view remains bearish for 1.2810.

Support 1.29751.29451.2905
Resistance 1.29751.30051.3045

XAU/USD – Our sell call was stopped out last night when price reached a high of 1569.05. While our position got stopped out, our view remains unchanged. We view this rally as a corrective rally and we see another decline lower to 1535 in the next few days. However a price move above 1571 would force us to reverse our view. MACD is still bearish and Stochastic is reaching overbought extreme.

Support 1563.401554.901547.50
Resistance 1572.101582.751593.05

NZD/USD – Price declined stop just above our stop order at 0.6548. While price may have halted before our stop, the decline may not be over as yet. The trend is still bearish at the moment. MACD is also bearish. Stochastic is close to oversold extreme and hopefully this can keep price from falling below 0.6440. Keep stop and profit orders unchanged at 0.6440 and 0.6540 respectively.

Support 0.64450.64050.6380
Resistance 0.64750.65000.6540

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