FX Commentary – Bets Raised On Fed Rate Cut.

Market Talk

  • The dollar regained ground against its peers on Monday as a surge in new cases of coronavirus globally, most notably in Italy, renewed concerns over the economic impact of the coronavirus outbreak.
  • However the dollar advance was checked on Tuesday, as investors sharply raised bets that the growing fallout from the coronavirus outbreak would prompt the Fed to deliver a rate cut sooner rather than later to cushion the impact from the coronavirus outbreak.
  • Against rising investor concerns about a coronavirus pandemic, the yen appears to have regained its safe-haven status following a rout last week against the greenback on fears about a significant virus-led hit to Japan’s economy given the country’s close proximity to China.
  • The Australian and New Zealand dollars were creeping up from milestone lows against the greenback, as was the euro. The Aussie last bought $0.6616, a third of a cent more than the 11-year low hit on Monday.
  • Germany’s closely watched IFO data unexpectedly rose this month, along with a gauge of future expectations and the IFO institute stuck to its first quarter growth forecast of 0.2% after a  better-than-expected euro zone composite PMI data the day before suggested the economic bloc has shrugged off the impact of the virus.

Chart Focus AUD/JPY
Key Points
1. Buy AUD/JPY recommendation
2. Buy AUD/JPY at 73.25. Stop at 72.95 and target at 73.80
3. Stabilization of virus in China while Italy and Japan suffered more cases and interest rate differential are both in the Aussie favour
4. Price supported at Fibonacci 62% correction point with MACD and Stochastic rising could be a sign of more upsides ahead

Fundamental Comments
1. Another Chinese state has reduced virus emergency level while virus spread to overseas Italy and Japan
2. Interest rate differential is in the AUD favour

Technical Comments
1. Correction of a rally was halted before the Fibonacci 62% correction point with price rallying of the support.
2. Stochastic and MACD are rising hinting of more price upside movement.

Key Levels

Support 73.2072.9572.65
Resistance 73.5073.8074.15

Technical Overview

USD/JPY -Our buy call was stopped out last night when the Dow had a drastic 1000 points decline. The reduced risk appetite send price to a low of 110.30. Price has managed to recover to 111.03 this morning but there could be more decline as MACD is still bearish and could be turning down again. Price is also capped by the 20EMA at 111.00. We see another movement to 110.30.

Support 110.75110.30110.05
Resistance 111.05111.40111.70

EUR/USD – Price rallied above the resistance point at 1.0860 but did not make much progress higher. The 20EMA support lies 1.0850 and is providing support at the moment. Stochastic is near to the overbought zone and there was a bearish crossover 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 1.08401.08101.0775
Resistance 1.08801.09251.0960

GBP/USD – Up till the time of writing, Monday and Tuesday’s range has been inside the range of Friday’s movement. This could be a sign of consolidation. MACD is confirming the consolidation as both its lines are flat and near to the zero line.  The boundaries to watch are at 1.2880 and 1.2980. Follow in the direction of the breakout. We prefer the downside.

Support 1.29101.28801.2845
Resistance 1.29401.29801.3020

XAU/USD – After reaching a high of 1689.28 yesterday, price has declined lower to 1642 this morning. This is also a gap support zone and price has just managed to hold above the gap area. However the decline does not looks completed. Stochastic is still declining and Stochastic is nearer to the overbought zone than the oversold zone. The next support comes in at 1619.20

Support 1642.451634.051623.20
Resistance 1657.301667.801680.15

USD/CNH – Yesterday, we had raised our stop to 7.0310. Our stop was hit yesterday as the US dollar weakened on worries over a rate cut. Price reached a low of 7.0121 this morning. This level is also a strong support level and the reaction at this support is likely to determine the next direction. MACD is still bullish and Stochastic is still moving lower but we remain bullish over the longer term.

Support 7.01207.00506.9930
Resistance 7.02707.03657.0455

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