FX Commentary – U.S. Dollar Weakened On Fed Rate Cut Worries.

Market Talk

  • The dollar nursed losses on Wednesday as a weaker U.S. consumer confidence raised questions about the strength of the US economy at a time when traders are betting the rapid spread of Covid-19 may trigger a material change to the Fed’s outlook on economy.
  • Fears of a pandemic escalated after the Covid-19 spread to Spain and dozens of countries, from South Korea to Italy, accelerated emergency measures while Iran’s virus death toll rose to 16, the highest outside China.
  • U.S. health officials’ warning about the spread of the coronavirus called into question the perceived strength of U.S. financial assets, sending U.S. equity market lower by 3% and 10-year treasury yield to a record low around 1.3%.
  • As coronavirus outbreaks spread to the Middle East and Europe, investors no longer see the U.S. economy immune to the pandemic. Market participants are betting  the U.S. Federal Reserve will have to cut interest rates to support the U.S. economy has grown over the past 2 days.
  • Fed Vice Chairman Richard Clarida said late on Tuesday the Fed is “closely monitoring” the escalating coronavirus outbreak but it is still too soon to gauge if it would require a change in monetary policy.

Chart Focus GBP/USD
Key Points
1. Buy GBP/USD recommendation
2. Buy GBP/USD at 1.2970. Stop at 1.2940 and target at 1.3060
3. Poor US economic data and UK budget is keeping the British pound strong.
4. Price support at 20EMA with bullish MACD could provoke a rally

Fundamental Comments
1. A slew of poor US economic data is leading to talk of a U.S. rate cut and weighing on the US dollar
2. Hopes of economic stimulus from UK budget in mid-march is keeping the Sterling strong

Technical Comments
1. Price support at the 20EMA could halt the decline and provoke a rally
2. MACD is bullish with both its lines above the zero line.

Key Levels

Support 1.29601.29151.2880
Resistance 1.29951.30201.3065

Technical Overview

USD/JPY – Another big equity market decline sent price lower to 109.88. A corrective rally can happen as MACD is turning up. Any rally is likely to be capped at the 20 EMA resistance point at 110.75 or the price high resistance at 111.05. We prefer to sell rally to 111.00 as we see price going lower to 109.60 to end this decline and starts a big rally to 114.70 over the next 6 months

Support 110.20109.85109.50
Resistance 110.55110.80111.05

EUR/USD – Price made a third consecutive high over the past 3 days but MACD is starting to show bearish divergence warnings. This is a warning that a possible high is nearby. Stochastic is into the overbought extreme but the 20EMA is still rising and strong. Our view remains unchanged. As long as price stays below 1.0890, we remain bearish for 1.0777.

Support 1.08501.08101.0775
Resistance 1.08901.09251.0960

AUD/JPY – Our buy call was stopped out yesterday. We are out with a loss of 30 pips. Price declined to a low of 72.51 yesterday but we could be near to a price bottom as both momentum indicators, MACD and Stochastic, are turning up from the low. A corrective rally could be capped by the falling 20EMA at 73.15. This resistance zone can provoke a decline back to 72.50 again.

Support 72.5072.2071.70
Resistance 72.9573.4073.75

XAU/USD – After reaching a high of 1689.28 two days ago, price has declined to 1624.80 last night, closing Monday’s morning gap. Price is likely to consolidate and the low last night was at the Fibonacci 50% correction point. MACD is warning with divergence and if price can hold above 1624.80, there could be a rally to 1660 over the next 48 hours.

Support 1636.951624.801613.15
Resistance 1646.151658.251669.25

AUD/USD – Price made a low this morning at 0.6568 but this may not be the low. Price trend is bearish with price capped by the 20EMA before this decline. Both Stochastic and MACD are warnings with divergence but MACD is still strongly bearish. 20EMA is also bearish. We may see a continuation of the decline if price is unable to move above 0.6640.

Support 0.65650.65250.6500
Resistance 0.65850.66100.6640

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