FX Commentary – Euro At A 5-Week High

Market Talk

  • The euro surged to a five-week high against the dollar on Monday, and held near its high on Tuesday as investors discounted the chances of big ECB rate cuts to counter coronavirus damage, while the greenback was pressured by the likelihood of full-blown Fed policy easing.
  • U.S. Fed Chairman Jerome Powell and ECB President Christine Lagarde have hinted at action in recent days. But with the ECB’s benchmark refinancing rate at 0% and the Fed’s funds rate range between 1.5% and 1.75%, the Fed has more room to manoeuvre; leading investors to unwind carry trades accordingly.
  • U.S. factory manufacturing activity slowed in February as new orders contracted, reflecting worries about supply chain disruptions related to the fast-spreading coronavirus outbreak, which has revived financial market fears of a recession.
  • The safe-haven Japanese yen gained on the dollar on Tuesday, as the market tempered hopes for global monetary easing with worries about its scale and efficacy in combating the economic damage from the coronavirus outbreak.
  • The Australian dollar climbed against its U.S. counterpart on Tuesday in Asia after the Reserve Bank of Australia only cut its official cash rate (OCR) by 25bps to a record low of 0.50%. A 25-basis-point cut was priced in and Aussie jumped higher as RBA did not cut by more than anticipated.

Chart Focus USD/CNH
Key Points
1. Buy USD/CNH recommendation
2. Buy USD/CNH at 6.9760. Stop at 6.9650 and target at 6.9970
3. Poor Chinese PMI data and coronavirus are both likely to keep the Chinese Yuan weak.
4. Price breaking out of chart pattern with rising momentum indicators is a sign of further price upsides.

Fundamental Comments
1. Poor Chinese PMI is likely to weigh on the Chinese economy and currency
2. Coronavirus outbreak is likely to keep US dollar strong and Yuan weak.

Technical Comments
1. Price has broken out of a Rounding Saucer chart pattern, which is hinting of a price rally.
2. Momentum indicators are rising and hinting of higher prices

Key Levels

Support 6.97256.96506.9590
Resistance 6.98206.99006.9990

Technical Overview

USD/JPY – Price rally was capped at 108.50 for the past two consecutive days and we think price is likely to test the low of 107.35 again over the next couple of days. 20EMA is neutral and price seems to be caught in a range for the past two days.  MACD is neutral but Stochastic is declining from overbought zone. We see price falling lower as a result.

Support 107.65107.35106.95
Resistance 108.05108.50108.85

EUR/USD – Our sell call yesterday was stopped out as price continued its rally to 1.1184. Price trend is bullish. 20EMA is also bullish and its slope is steep, hinting of a strong bullish trend. However Stochastic is overbought while MACD is bullish and strong. If price can hold above 1.1110, we can see a test of 1.1220.

Support 1.11201.10801.1040
Resistance 1.11551.11901.1225

GBP/USD – Price moved just above the resistance at 1.2840 to a high of 1.2850 but has declined to a low of 1.2740 again this morning. Price could be building a base around 1.2740. Stochastic is rising and MACD also had higher trough which is a sign of further price upsides. 20EMA is also turning up. We see price testing and breaking above 1.2840 today for 1.2900.

Support 1.27701.27351.2705
Resistance 1.28051.28501.2890

XAU/USD – Price reached a high of 1610.80 and declined to a low of 1584.25 yesterday. Today, we see price testing the topside at 1616 or the next resistance at 1624.80. MACD is still bearish and Stochastic is still weak. As long as price is below 1624.80, we see price testing the low of 1561 again over the next few days.

Support 1584.251573.701562.65
Resistance 1601.401610.801624.45

AUD/USD – Price jumped 60 pips on RBA’s 25bps cut but the rally was halted by a previous price high. It was also below the important resistance at 0.6585. If price is unable to move above 0.6585, we remain bearish on this pair. Above 0.6585 would mean price has found a bottom at 0.6433.

Support 0.65150.64700.6430
Resistance 0.65550.65900.6630

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