FX Commentary – US Dollar Weaker After Another Sudden US Rate Cut

Market Talk

  • The dollar fell against a broad range of currencies on Monday after the U.S. Federal Reserve made another surprise interest rate cut and major central banks took steps to relieve a shortage of dollars in financial markets.
  • The Fed’s move on Sunday U.S. time was likely aimed at staving off what had the potential to be another volatile week in financial markets, analysts said. However, U.S. stock futures plunged after the rate cut, suggesting investors remain nervous.
  • Bank of Canada and Reserve Bank of New Zealand were among central banks to cut interest rate in a sudden move. The moves came as policymakers responded to a brutal months-long sell-off in financial markets due to worries about the economic impact of the global spread of the coronavirus.
  • European Union finance ministers plan to agree on Monday on a coordinated economic response to the coronavirus pandemic, with the European Commission forecasting the effects of the virus could push the EU into a recession.
  • China released economic data on Monday morning that revealed the scale of damage caused by coronavirus outbreak in China. Data showed a huge collapse in industrial production, retail sales and a jump in unemployment leading to worries of a recession.

Chart Focus USD/JPY
Key Points
1. Sell USD/JPY recommendation
2. Sell USD/JPY at 106.70. Stop at 107.10 and target at 105.30
3. A cut in interest rate and spread of coronavirus are both likely to weigh on the US dollar
4. An inability to close a price gap and with MACD hinting of a bearish trend, price is likely to decline.

Fundamental Comments
1. A cut in US interest rate is likely to weigh on the US$
2. Spread of coronavirus is also likely to weigh on the US$ and favour the safe haven yen

Technical Comments
1. An inability to close a price gap is likely an a hint of a bearish trend
2. MACD’s histogram is starting to turn down

Key Levels

Support 106.15105.65105.20
Resistance 106.70107.15107.55

Technical Overview

AUD/USD – Price reached a low of 0.6094 this morning after an earlier movement higher to 0.6300. MACD is starting to show bullish divergence. This is a warning of a possible price low. Stochastic is also showing bullish divergence. If price can hold above 0.6094, we see a test to break above 0.6180. A successful break is likely to bring price higher to 0.6300.

Support 0.61200.60900.6065
Resistance 0.61800.62200.6255

EUR/USD – Price tested the low of 1.1050 and closed near this low on Friday but managed to move higher to 1.1198 this morning. If price is unable to move above 1.1200, we see price declining back to 1.1050 again to test the low. MACD is starting to turn up again. Stochastic has a bullish crossover and is also moving higher.

Support 1.11301.11001.1050
Resistance 1.11701.12201.1255

GBP/USD – Price has declined to a low of 1.2250 on Friday and this could be a temporary low. MACD is bearish but is starting to turn higher. Stochastic is in the oversold extreme and could be turning up. While the trend is still bearish, we may see a corrective rally higher to 1.2465 or 1.2520.

Support 1.23201.22801.2250
Resistance 1.23701.24201.2465

XAU/USD – Our buy Gold call on last Friday was wrong. We were stop out for a loss. Price had gapped higher to 1555.00 this morning and has drifted slightly lower. Both MACD and Stochastic look like it may have reached a short term bottom and both are likely to recover and move higher. We see a move higher to 1565 or 1574 in the next 48

Support 1530.951523.651512.10
Resistance 1555.051566.201575.00

USD/CNH – A price decline from the high of 7.0517 was halted at the Fibonacci 50% correction point of the rally from 6.9042 to the high of 7.0517. MACD is also bullish and turning up again. Stochastic had corrected from the overbought zone and could be turning up again as well. If price can stay above 6.9814, we can see a rally to test the high of 7.03 again in the next couple of days.

Support 7.00406.99106.9815
Resistance 7.01807.02807.0410

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