FX Commentary – US Dollar Recovers As Coronovirus Spread

Market Talk

  • The dollar held gains against its peers on Thursday as growing fears that a coronavirus outbreak is turning into a global pandemic drove investors to the safety of U.S. Treasuries and safe havens.
  • The virus is now spreading faster outside of China than within, stoking fears that the economic impact of travel curbs, supply chain disruptions, and falling demand might be far greater than previously anticipated and will likely have a greater impact on global economy.      
  • Efforts to contain the outbreak have paralyzed large swathes of China’s economy, which are only slowly returning to normal. There are worries that other countries could face the same problem as the virus spreads around the world.
  • The dollar also traded near a 3-month high versus the pound due to worries that UK’s trade talks with the EU were stalling as comments from both sides suggested their views on the scope of a free-trade agreement differ greatly and dashed expectations for big fiscal spending leading to investors scaling back expectations for an expansionary fiscal policy.
  • The euro, however, its own against the greenback’s wider advance on reports that Germany’s finance ministry is considering easing fiscal spending restrictions to boost its flagging economy.

Chart Focus Gold – XAU/USD
Key Points
1. Buy Gold recommendation
2. Buy Gold at 1645.00. Stop at 1622.00 and target at 1687.00
3. Poor US economic data and spread of coronavirus outside of China are both supportive of Gold
4. A Double Bottom breakout with bullish momentum is hinting of further price upsides.

Fundamental Comments
1. Poor US data is weighing on the US dollar
2. Coronavirus spread outside of China is boosting demand for safe haven Gold

Technical Comments
1. A Double Bottom breakout with price above the neckline at the moment
2. Both Stochastic and MACD are turning around, hinting of further price rally

Key Levels

Support 1643.501634.101624.75
Resistance 1657.301671.401687.25

Technical Overview

USD/JPY – Price reached a high of 110.75 last night but the rally was capped by the 20EMA. MACD is bearish and is looking like it will turn lower again. Stochastic has barely more out of the oversold extreme but could see a bearish crossover. 20EMA is still bearish. We see another move lower to 109.60 to complete the decline.

Support 110.20109.85109.50
Resistance 110.55110.80111.05

EUR/USD – Price made a fourth consecutive high over the past 4 days but MACD and Stochastic are starting to show bearish divergence warnings. This is a warning that a possible high is nearby. Price movement above 1.0900 has negated our bearish view but we are not convinced of the rally and prefer to stay neutral for now.

Support 1.08801.08501.0815
Resistance 1.09251.09601.0995

GBP/USD – Our buy call yesterday was wrong and we lost 30 pips. Price dropped to a low of 1.2992, which was also the low on Monday. Price will need to drop below this support to decline lower. Above this support, price is likely to test the high of 1.2990 again. Stochastic is near to the oversold extreme and MACD is not giving any hint at the moment.

Support 1.29101.28801.2845
Resistance 1.29501.29951.3020

USD/CHF – Price is likely to continue with its decline today as MACD is still bearish and declining. Stochastic has a bearish crossover after barely making it out of the oversold zone. 20EMA is bearish and its slope is steep. This is a hint of a strong bearish trend. We see price moving lower to 0.9680. Above 0.9780 would negate our bearish view.

Support 0.97150.96800.9645
Resistance 0.97450.97750.9815

AUD/USD – Price made a low this morning at 0.6541 but this may not be the low. Price trend is bearish with price capped by the 20EMA. Both Stochastic and MACD are warnings with divergence but MACD is still strongly bearish. 20EMA is also bearish and its gradient steep. This is a sign of a strong bearish trend.  Only a move above 0.6615 would negate this bearish view.

Support 0.65400.65000.6460
Resistance 0.65800.66100.6640

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