FX Commentary – Bonds Are Pricing In A US Rate Cut.

Market Talk

Market Talk

  • The yen and the euro rose against the dollar on Monday on growing expectations that the U.S. Federal Reserve will cut interest rates at its policy review this month to protect the economy from the rapid spread of the coronavirus.
  • Powell said on Friday the central bank will “act as appropriate” to support the economy in the face of risks posed by the coronavirus epidemic. Investors take it as a hint that the Fed will cut interest rates by at least 0.25 percentage points at its next scheduled meeting on March 17-18, sending 10-year yield to a record low of 1.19%.
  • The pound was supported by stronger-than-expected consumer confidence data for February and the fastest annual gain in housing prices since August 2018, as measured by the Nationwide Building Society. However, worries over UK and EU negotiations on a free trade deal kept the pound weak.
  • China’s official Purchasing Managers’ Index (PMI) fell to a record low of 35.7 in February from 50.0 in January, the National Bureau of Statistics said on Saturday, showing factory activity contracted at the fastest pace ever. Caixin Manufacturing PMI this morning came in at 40.3 against expectation of 46.1.
  • The Aussie dollar hit an 11-year low of $0.6435 on Friday with worries over Chinese economy and a Aussie rate cut weighing on the Aussie. NBA and Goldman Sachs are both predicting a rate cut by the RBA at its policy meeting tomorrow morning.

Chart Focus EUR/USD
Key Points
1. Sell EUR/USD recommendation
2. Sell EUR/USD at 1.1070. Stop at 1.1110 and target at 1.0965
3. Stronger US consumer confidence and interest rate differential are both aiding the US dollar.  
4. Price is capped by a strong resistance zone and momentum indicators are hinting of a down move.

Fundamental Comments
1. UoM consumer confidence was above expectation at 101.0, hinting of a relative strong US economy compared to the Euro zone.
2. Interest rate differential is in the US dollar favour

Technical Comments
1. Price is capped by a strong resistance zone
2. Stochastic is into overbought zone and turning down while MACD is showing bearish divergence.

Key Levels

Support 1.04451.04251.0385
Resistance 1.04751.05051.0530

Technical Overview

USD/JPY – Price went down to a low of 107.35 on Friday and has recovered to a high of 108.35 this morning. We think price could be capped at this high and a decline back to 107.35 is possible over the next couple of days. MACD is still bearish and its fast line has reached the zero line and could be turning down. Stochastic is still rising.

Support 107.90107.65107.35
Resistance 108.35108.70109.05

AUD/NZD – Our buy call on Friday was stopped on Friday night when price dipped below 1.0400. While our position got stop out, our view remains unchanged. Price is now approaching our targeted move at 1.0495. If price can move above 1.0475, it should continue towards 1.0505. Both Stochastic and MACD are moving higher without any divergence at the moment.

Support 1.04501.04251.0385
Resistance 1.04751.05051.0530

GBP/USD – Price broke the support at 1.2840 on Friday’s night and declined lower than our expectation to a low of 1.2727. A price recovery has moved price close to 1.2840. We will need to watch the resistance at 1.2840 for clues. MACD is bearish but Stochastic is starting to turn higher from below the oversold zone.

Support 1.28051.27601.2725
Resistance 1.28451.28801.2915

XAU/USD – Our long position was stop out on Friday night as price went below 1600. The sharp decline on Friday’s night managed to find support at its previous support of 1561. MACD is bearish with both its line below the zero line but Stochastic has a bullish crossover near to the oversold zone. We could see a pullback but price must move above 1625 to be bullish again.

Support 1590.201573.701562.65
Resistance 1607.351624.451634.10

AUD/USD – Price went lower than our expectation to a low of 0.6433 on Friday night. While the low was made, Stochastic has a divergence warning. However MACD did not have a divergence warning. This morning, price has recovered to 0.6544 but the rally was capped by the 20EMA. If price is unable to move above this point, the risk is another test to the bottom at 0.6433.

Support 0.65150.64700.6430
Resistance 0.65450.65900.6630

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