FX Commentary – US Dollar Weighed Down By Treasury Yields Drop

Market Talk

  • The dollar fell on Thursday as Treasury yields continued to plumb new lows and investors bet the Federal Reserve would cut interest rates to offset the impact of a spreading coronavirus. Investors feared a jump in coronavirus infections in the U.S. could derail U.S. economic growth.
  • US 10-year Treasury yields sank to record lows below 1.25%, closing the day at 1.28%.  The tumble in yields weighed on the dollar, with the market now aggressively pricing in Fed rate cuts fearing that the virus outbreak will dampen the US economy.
  • EUR/USD rose on news that Germany may be introducing stimulus measures to counter the virus outbreak. The pound sank below 1.29 as the UK affirmed that it will walk away from trade talks with the EU if they can’t get an agreement by June.
  • The Aussie and Kiwi are also posting decent gains amid short covering against the dollar, with the greenback now in a tricky spot amid virus concerns that are brewing in the US.
  • Risk aversion is set to be in full flood on Friday with safe-haven Yen and Swiss gaining ground but Gold was little changed. Profit-taking prevented gold from regaining the momentum that took it to seven-year highs this week, despite Wall Street’s continued meltdown.

Chart Focus AUD/NZD
Key Points
1. Buy AUD/NZD recommendation
2. Buy AUD/NZD at 1.0450. Stop at 1.0410 and target at 1.0495
3. Negative NZ business confidence and China’s factory return from lock down are both likely to benefit the Aussie dollar
4. Price has broken above a downtrend line with both momentum indicators hinting of further price upsides

Fundamental Comments
1. NZ business confidence was negative and is likely to weigh on the NZ dollar.
2. China’s gradual return to business activity after lock down is likely to benefit the Aussie dollar

Technical Comments
1. Price has broken above a 3-week down trend line signal a possible reversal in trend
2. Both momentum indicators are moving higher, hinting of further price upside

Key Levels

Support 1.04451.04251.0385
Resistance 1.04751.05051.0530

Technical Overview

USD/JPY – We were looking, over the past 2 days for a decline to 109.60 to complete the down move. Price has moved below this point to 109.40 this morning. MACD is starting to show divergence warnings and Stochastic is into the oversold extreme. Now we need to wait for a reversal candlestick signal to confirm the reversal.

Support 109.30108.90108.55
Resistance 109.65110.00110.30

EUR/USD – We saw a strong up move yesterday after price broke above the 1.09 handle. MACD is strong now with both its lines above the zero line. MACD can support a price move to 1.1080. However Stochastic is into the overbought extreme. The rally may have to come after a small price correction lower to 1.0925 from current level.

Support 1.09601.09251.0880
Resistance 1.09951.10301.1080

GBP/USD – Price declined from a high of 1.3015 over the past 2 days to 1.2860 last night. Price is still above an important support at 1.2840. A break of this support is likely to lead price lower to 1.2760. MACD is bearish at the moment and we favour a down move to the next support at 1.2760. Stochastic is into the oversold extreme and may not be able to support a down move. Wait for better signals.

Support 1.28801.28451.2805
Resistance 1.29151.29501.2995

XAU/USD – Our buy call was filled yesterday and our view remains unchanged. Despite the plunge in DJI overnight, Gold was capped at 1660. MACD is neutral at the moment while Stochastic is still rising. The 20EMA on the 4-hourly chart at 1644 is currently holding price. Keep stop and profit order unchanged and watch out for 1634 chart point as first warning of a failure pattern.

Support 1643.501634.101624.75
Resistance 1652.151660.201671.40

AUD/USD – Price managed to recover from 0.6541 but the rally was capped near the 20EMA at 0.6590. MACD is still bearish and Stochastic is still weak after moving out of the oversold zone. 20EMA is bearish and its gradient is steep. The bearish trend is still strong and we think if price is capped at 0.6590, we see another decline to 0.6500 or 0.6460.

Support 0.65400.65000.6460
Resistance 0.65800.66100.6640

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