Market Talk
- The U.S. dollar moved off session lows on Tuesday, but remained under pressure as Treasury yields fell to record lows after the Federal Reserve delivered a surprise 50bps rate cut to cushion the potential impact from the spread of coronavirus on the economy.
- Fed Chair Jerome Powell reiterated his view that the U.S. economy remains strong but acknowledged that the spread of the virus had caused a material change in the U.S. central bank’s outlook for growth. Rate cut was intended to limit the economic damage from the spreading coronavirus to safeguard against risks to economic growth.
- The safe-haven Japanese yen and Swiss franc gained on the dollar on Tuesday, as investors remained nervous about the economic fallout of the coronavirus outbreak. Gold returned to mid-$1,600 levels on Tuesday as an emergency rate cut by the Federal Reserve and worry that U.S. cases of the coronavirus had crossed the triple-digit mark drove demand for the safe haven.
- Sterling rose against the dollar on Tuesday, even as Britain’s fractious trade talks with the EU and expectations of rate cuts to counter coronavirus damage kept the currency near recent 4-1/2-month lows.
- This morning Caixin Services PMI came in at 26.5, which was much lower than expectation of 48.0, underlining the economic damage from the spreading coronavirus in China.
Chart Focus USD/CHF
Key Points
1. Sell USD/CHF recommendation
2. Sell USD/CHF at 0.9600. Stop at 0.9640 and target at 0.9520
3. Rate cut and spread of coronavirus are both favouring the Swiss.
4. Strong price resistance and bearish MACD are both likely to push price lower
Fundamental Comments
1. A half percentage point cut in rate is weighing on the US dollar
2. Safe haven Swiss is aided by the spread of coronavirus which is causing economic damage to the global economy
Technical Comments
1. Strong resistance at a previous price low and the 20EMA point are both likely to cap price advance
2. MACD is bearish with both of its lines well below the zero line
Key Levels
| Support | 0.9570 | 0.9545 | 0.9515 |
| Resistance | 0.9610 | 0.9650 | 0.9690 |
Technical Overview
USD/JPY – Price had declined lower than our expectation to a low of 106.85 as a result of an emergency rate cut by the Fed. MACD is starting to warn with divergence with price. Stochastic is rising from the oversold extreme. We see a correction in price higher to 108.10 or 108.50 but we remain bearish in the longer term.
| Support | 107.25 | 106.85 | 106.50 |
| Resistance | 107.65 | 108.05 | 108.50 |
EUR/USD – Price continues its rally to a high of 1.1211 overnight but there are divergence warnings of a high in the making. While we are bullish in the longer term, short term wise, there could be a corrective decline to unwind the overbought condition before another rally. Possible price supports are at 1.1090 or 1.1060
| Support | 1.1130 | 1.1095 | 1.1060 |
| Resistance | 1.1170 | 1.1215 | 1.1240 |
GBP/USD – Price was capped at 1.2841 again overnight and as long as price is unable to move above this resistance point, we see price going back to test the low at 1.2725. Stochastic is starting to turn lower. MACD is bullish at the moment but is weak with both its line flat and close to the zero line. Above 1.2850 would call for 1.2980.
| Support | 1.2795 | 1.2760 | 1.2725 |
| Resistance | 1.2840 | 1.2885 | 1.2925 |
XAU/USD – As long as price stays above 1610, we think price is likely to see 1670 again. Any corrective decline is likely to halt around the Fibonacci 50% correction point of 1625 and the 20EMA support at 1621. If price is supported at this support zone, it could rally to test the resistance at 1670. Both Stochastic and MACD are rising in support of price.
| Support | 1637.40 | 1626.30 | 1613.35 |
| Resistance | 1652.10 | 1665.80 | 1674.40 |
USD/CNH – Our buy call last night was stopped out when Fed made an emergency 50bps rate cut. Price has dropped further to 6.9253 this morning. MACD is starting to show bullish divergence with price, which is a hint of a possible price bottom in the making. Stochastic is also in the oversold extreme but 20EMA is bearish with a steep slope.
| Support | 6.9250 | 6.9175 | 6.9070 |
| Resistance | 6.9365 | 6.9450 | 6.9540 |
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