FX Commentary – US Dollar Rose Across The Board On Coronavirus Panic

Market Talk

  • The dollar stood tall on Friday as investors scrambled for the world’s most liquid currency amid deepening panic about the coronavirus outbreak while the euro nursed losses after the European Central Bank disappointed investors by not cutting rates.
  • The US dollar held gains against most currencies after a blowout in swap spreads showed investors are facing a shortage of dollars. The Federal Reserve moved to provide $1.5 trillion in short-term liquidity and changed the durations of Treasuries it buys to ease this liquidity problem.
  • Money markets show investors expect the Fed will have to go even further to restore calm to financial markets. The Fed meets next week and many analysts now expect the central bank to chop its own target policy rate, quite possibly to zero, and give markets new guidance about how it plans to combat the economic fallout from the coronavirus.
  • The ECB rolled out yet another stimulus package on Thursday to help fight off the coronavirus pandemic but did not join its counterparts in the United States and Britain by cutting rates. It was a move that disappointed financial markets, sending the Euro plunging against the US.
  • Gold lost its key $1,600 support on Thursday as investors cashed out their long positions in the yellow metal in a scramble to cover margins and losses on Wall Street as equity markets plunged on fears about the economic impact of the flu-like virus.  

Chart Focus Gold
Key Points
1. Buy Gold recommendation
2. Buy Gold at 1576.70. Stop at 1564.40 and target at 1606.00
3. Spread of coronavirus and expectation of rate cut should both benefit safe haven Gold
4. Price ability to stay above a support and with momentum indicators turning up, price should be moving higher

Fundamental Comments
1. Spread of coronavirus should lead to an increase in demand for safe haven Gold
2. Expectation of US rate cuts should benefit Gold

Technical Comments
1. Price has managed to stay above an important support low
2. Both MACD and Stochastic are turning up after declining drastically overnight

Key Levels

Support 1575.501565.801550.55
Resistance 1590.751605.901615.70

Technical Overview

USD/JPY – Price recovery was halted this morning at 106.10. The reaction at this level is likely to determine the next direction of this pair. If price can go above 106.10, it is likely to move to the next resistance point at 107.65. Inability to move above could result in price going back to 103.50. Stochastic is moving higher but MACD is showing consolidation.

Support 105.30104.55104.05
Resistance 106.15106.80107.30

EUR/USD – Price’s decline overnight was halted by the Fibonacci 62% correction point at 1.1050 from the rally off 1.0777 low to the recent high at 1.1491. MACD is still bearish at the moment but is rising from the low point. Stochastic is rising from the oversold extreme. Price should test the 20EMA and a previous support turned resistance at 1.1225.

Support 1.11651.11151.1050
Resistance 1.12251.12751.1335

GBP/USD – Price reached a low of 1.2490 overnight but a recovery from the low seems weak at the moment. If price is unable to move above 1.2600, we are likely to see a test of 1.2490 again. MACD is still bearish. Stochastic is moving higher from oversold zone but the movement seems weak at the moment.

Support 1.25201.24851.2415
Resistance 1.25751.26251.2690

AUD/USD – Price reached a low at 0.6210 overnight. At the moment 20EMA is hinting of a strong bearish trend. MACD is also hinting of a strong bearish trend but Stochastic is oversold. We may see a correction higher to 0.6345 before the downtrend resume again for another test of the 0.6210 low again.

Support 0.62650.62100.6180
Resistance 0.63250.63500.6435

USD/CNH – A price decline this morning off the high of 7.0500 has brought price lower to 6.9900. This is also the trend line and 20EMA support. If price is able to stay above this trend line, we see a retest of the 7.0500 high again over the next couple of days. If not we are likely to see a retest of 6.9500. MACD is still bullish but Stochastic is still moving lower.

Support 6.98506.97206.9610
Resistance 7.00357.01507.0305

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