FX Commentary – US$ Strength Continues

Market Talk

  • The dollar held gains on Monday after US non-farm payroll data provided the latest sign of U.S. economic strength, while worries about the coronavirus epidemic kept risk appetite in check and other trade-exposed currencies subdued.
  • Data on Friday showed U.S. job growth accelerated last month, blowing past estimates, with particular strength in construction – indicating the economy is in decent shape. US non-farm payrolls surged 225,000 in January, well above Bloomberg median estimate of 165,000.
  • The death toll from the coronavirus outbreak, meanwhile, rose again over the weekend, passing the total killed by the SARS epidemic. It now stands at 908 in mainland China, where there are a total of 40,171 infections.
  • The offshore yuan was down to 6.9830 yuan per dollar, though it was still set for a small gain this week thanks to stimulus from China’s central bank and Beijing’s announcement of tariff cuts on U.S. imports.
  • Trade-exposed currencies were on the back foot, the dollar at milestone highs against other majors and safe-haven currencies such as Australian dollar touched a fresh decade-low of $0.6657 in early trade and last stood at $0.6680. The New Zealand dollar touched a two-month low of $0.6397.

Chart Focus USD/CAD
Key Points
1. Sell USD/CAD recommendation
2. Sell USD/CAD at 1.3295. Stop at 1.3330 and target at 1.3210.
3. A price base for crude oil and a the US dollar gain since the start of the year may weigh on the US dollar
4. Price may have reached a peak after climbing for the past 2 months and momentum indicators are hinting of a price high.

Fundamental Comments
1. Crude oil price may have found a bottom after declining since early Jan 2020
2. USD has gained against the CAD since the start of this year and a pause may be necessary

Technical Comments
1. Price has been climbing for the past 2 months and a correction may be due.
2. MACD has given divergence warnings of a top and Stochastic is deep into overbought extreme and both hint of a price correction

Key Levels

Support 1.32601.32301.3205
Resistance 1.32951.33251.3350

Technical Overview

USD/JPY – Price declined to 109.50 during a correction on Friday. However price was supported by the 20EMA. While Stochastic is turning down from overbought extreme, MACD’s fast line is turning around just above the zero line. The correction could be limited to 109.50 and we could see another rally above the previous high of 110.02 in the next few days.

Support 109.50109.25108.90
Resistance 109.90110.30110.60

EUR/USD – Price did not do the corrective rally above 1.10 but instead continued its decline to a low of 1.0940. As Stochastic is deep into the oversold extreme and MACD, while bearish is still rising, we see a possible corrective rally to correct the oversold condition. Resistance is at 1.0990 which could cap  the corrective rally.

Support 1.09351.08951.0870
Resistance 1.09651.09901.1025

GBP/USD – – Price did not rally to our idea level on Friday but instead declined to 1.2880. Stochastic is deep in oversold extreme and MACD has a divergence warning. Our view remains unchanged. We see price going down to 1.2810 but for the short term, price may see a correction to 1.2920 before the decline.

Support 1.28801.28451.2805
Resistance 1.29201.29601.3005

XAU/USD – Price is caught in the middle by good US data and coronavirus pandemic. Price is likely to be caught between the recent high of 1593 to last week’s low of 1547. MACD is bullish but Stochastic has reached its overbought extreme. We see a price correction back to either the 20EMA or the previous price support at 1563. The longer term outlook is bullish for Gold.

Support 1563.401554.901547.50
Resistance 1572.101582.751593.05

USD/CNH – Our buy call was not filled on Friday. Price has moved higher to 7.0117, almost reaching to our target. MACD has turned bullish but Stochastic has almost reached the overbought extreme. While the trend is still bullish, momentum indicator is indicating a correction before the trend resumes.

Support 6.97706.97256.9645
Resistance 6.98956.99657.0170

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