FX Commentary – Can EUR/USD Recovery From 34-month Low Continues?

Asian currencies slid on Monday as the rapid spread of the coronavirus beyond China drove fears of a pandemic and sent investors flocking to gold and the dollar for safety. The U.S. dollar which fell sharply on Friday following data showing key U.S. services sector unexpectedly contracted, recovered its ground on Monday morning.

The World Health Organization said it was worried about the growing number of cases without any clear link to China. The Australian dollar, sensitive to developments in the outbreak because Australia is a major exporter of commodities, fell through $0.66 to touch a fresh 11-year low.

U.S. IHS Markit flash services sectors Purchasing Managers’ Index dropped to 49.4 in February, the lowest in six years, raising concerns about the health of the broader economy as services account for roughly 66% of total growth. The weakness in manufacturing continued, showing a weaker-than-expected reading of 50.8.

The pound rose against the greenback amid more evidence the U.K. economy is on the mend. UK manufacturing activity topped estimates in February, but services just missed economists’ forecasts for a reading of 53.4, according to data from IHS Markit.

The Euro rose to $1.0857 as better-than-expected euro zone composite PMI data suggested the economic bloc has shrugged off the impact of the virus so far and poor US PMI data helped the single currency to recover from a 34-month low reached on Thursday 20 February 2020.

Chart Focus USD/JPY
Key Points
1. Buy USD/JPY recommendation
2. Buy USD/JPY at 111.30. Stop at 110.95 and target at 112.15
3. Interest differential and a preference for US dollar as a safe haven status is weighing on the Jap Yen
4. Price is supported by the 20EMA with MACD hinting of more upsides ahead.

Fundamental Comments
1. Yen has lost its safe haven status to the US dollar as the Yen is weighed down by coronavirus.
2. Interest rate differential is in the US dollar favour

Technical Comments
1. Price is in an uptrend and is supported by the 20EMA.
2. MACD is bullish and the fast line is turning around from the zero line hinting of more upside ahead.

Key Levels

Support	111.30	110.80	110.25
Resistance	111.65	112.20	112.45

Technical Overview

USD/CNH – Our buy order was filled when price reached a low of 7.0315 on Friday night. However, price only reached a high of 7.0547, missing out on our profit order. We would recommend bringing stop higher to 7.0310 while keeping profit target at 7.0550. Both momentum indicators are correcting and have not given a bearish signal. Our view remains bullish.

Support	7.0335	7.0230	7.0170
Resistance	7.0455	7.0550	7.0645

EUR/USD – Price rally on Friday was capped by the resistance point at 1.0860 and we have seen a decline to 1.0820 currently, which is also where the 20EMA support lies. Stochastic is near to the overbought zone but failed to move into the overbought zone despite the strong rally on Friday, which could be a sign of weakness. If price is capped at 1.0890, we think price is likely to test the low of 1.0777 again in the next few days.

Support	1.0805	1.0775	1.0730
Resistance	1.0840	1.0890	1.0925

GBP/USD – Price recovered from the 1.2847 low on Friday after a UK manufacturing activity topped market’s estimates. Price reached a high of 1.2980 on Friday but has declined lower this morning to 1.2933, weighed down by a strong US dollar. If price is unable to move above 1.2900, we remain bearish for 1.2810.

Support	1.2925	1.2885	1.2845
Resistance	1.2955	1.2980	1.3020

XAU/USD – Price moved above our target of 1627 to a high of 1680.16 this morning. On the 4-hourly chart, there is a Pin Bar. This could be a warning of a possible high and a correction ahead. Stochastic is in the overbought zone but MACD is strong and bullish. We remain bullish but prefer to wait for a dip to 1648 to enter into a long position

Support	1657.27	1647.20	1637.70
Resistance	1667.80	1680.15	1700.00

USD/CAD – Our position was stop out at our cost on Friday night. We had raised the stop higher to cost and was stopped out after a poor U.S. data. However, this morning, price is back to the high of 1.3264 after coronavirus spread send flow into safe haven U.S. dollar. We remain bullish on this pair and a break above 1.3280 would confirm the upside trend.