FX Commentary – Expectation Of U.S. Rate Cut Depresses US Dollar

Market Talk

  • The dollar resumed its descent against the safe-haven Yen and Swiss on Wednesday after a rebound the previous day when investors turned hopeful that global policymakers would introduce stimulus to cushion the economic impact of the coronavirus outbreak.
  • The dollar had rebounded on Tuesday after huge losses against the yen, the euro and the Swiss franc, boosted by a rebound in Treasury yields from a plunge to record lows a day earlier. Recovery in the equity market and oil price helped to calm investors’ fears of an imminent recession.
  • The pound slumped against the dollar on the eve of the U.K. budget revelation despite expectations the country is set to deliver a big stimulus package and measures to help combat the Covid-19 outbreak.
  • The dollar rose 1.2% to 0.9361 Swiss francs on Tuesday, and then fell to 0.9299 francs after three days of heavy selling pushed it to its lowest in almost five years. Data suggested the Swiss National Bank was intervening to weaken the Swiss francs.
  • Market participants are expecting the Fed to cut interest rates by at least 0.5% at its policy meeting on Mar 17-18, in addition to its emergency rate reduction earlier this month. That will essentially diminish the dollar’s yield advantage over other major currencies, which has been the main driver of the dollar’s strength in the past few years.

Chart Focus EUR/USD
Key Points
1. Buy EUR/USD recommendation
2. Buy EUR/USD at 1.1320. Stop at 1.1275 stop and target at 1.1465
3. Worries over the spread of the coronavirus in the US and worries over a rate cut are both depressing the US dollar
4. Price has found support and is turning up with MACD supporting the price rally.

Fundamental Comments
1. Expectation of a U.S. rate cut is weighing on the US dollar.
2. Worries over the spread of coronavirus and its impact on the US economy is weighing on the US dollar

Technical Comments
1. Price found support at a previous low and has rebounded above the 20EMA which is a bullish hint.
2. MACD is bullish and the fast line has turned up from below the zero line.

Key Levels

Support 1.13101.12751.1245
Resistance 1.13601.14001.1435

Technical Overview

USD/JPY – Price managed to close the gap at 105.25 to reach a low of 105.90. However, price was unable to sustain above 105.25 and has declined to 104.25 this morning. MACD is bearish and is turning lower. Stochastic has reached the overbought zone. We see price coming down to test the low of 103.50 initially and later to 102.30 on a longer term basis.

Support 104.15103.70103.35
Resistance 104.50104.90105.25

AUD/USD – After reaching a high point at 0.6684 on Monday, price has declined to a low of 0.6461 overnight. The price recovery from this low is likely to be halted by the 20EMA at 0.6550 and also the previous price support turned into resistance at 0.6530. As MACD is still bearish and Stochastic is starting to turn down, we think price is likely to reverse around 0.6530-0.6550 for another test of 0.6430.

Support 0.64900.64650.6430
Resistance 0.65300.65650.6590

GBP/USD – The decline overnight reached a low of 1.2860 and this morning, we have seen price recovered to 1.2940. MACD remains bullish on the 4-hourly chart and Stochastic is turning up from the oversold zone. This could be a sign of a price rally higher to 1.30. After the bigger than usual decline overnight, we think there should be a corrective rally to 1.30.

Support 1.29051.28601.2825
Resistance 1.29401.29901.3035

XAU/USD – Our buy order was filled yesterday when price dropped to a low of 1641.50. Price has moved above the 20EMA point of 1660.35, which has strengthened our view of a rally to 1685. We would recommend bringing stop higher to break even at 1647.20 and also bring profit target lower to 1678.40. Stochastic and MACD are both turning up from their extreme level, which is a good sign.

Support 1657.851648.901641.50
Resistance 1667.351676.151685.05

USD/CHF – Price reached a high 0.9410 overnight but has fallen below an uptrend channel on the 4-hourly chart. MACD is still bearish. Stochastic is reaching its overbought zone and upside momentum could be limited. We see price going lower to initial 0.9275 and later to 0.9170 again over the next few days

Support 0.93050.92750.9230
Resistance 0.93500.93800.9410

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