FX Commentary – US Dollar Funding Pressure Returned

Market Talk

  • The euro rose against its peers on Thursday after the European Central Bank announced a 750 billion euro asset-purchase program in response to the coronavirus outbreak to offset the impact the coronavirus outbreak is having on the global economy and financial markets.
  • The Euro had initially fallen to 1.0800 against the dollar but recovered to $1.0980 on the ECB’s program. Analysts say the euro’s gains could be short-lived because many investors are selling what they can to keep their money in dollars due to the unprecedented amount of uncertainty caused by the virus epidemic.
  • – The dollar funding pressures crop up overnight and underpin the greenback.  Euro area banks took up $112 billion in dollar funding in a special auction by the ECB yesterday which was the most since the 2008-09 financial crisis. Risk sentiment continues to sour as investors opt to sell everything once again over worries of the rapid spread of coronavirus.
  • The pound fell to its lowest level against the dollar in over three decades as the shocks caused by the coronavirus rippled through global markets.  Sterling tumbled to $1.1450 on Wednesday, the lowest since at least 1985, as the rush into dollars left no currency unscathed.
  • The Australian dollar was pinned near a 17-year low, while the New Zealand dollar fell to an 11-year low as price dislocations and low liquidity in other financial markets sparks an investor exodus into US dollar.
  • There will be no Daily FX Commentary for tomorrow 20 March 2020.

Chart Focus EUR/USD
Key Points
1. Sell EUR/USD recommendation
2. Sell EUR/USD at 1.0950. Stop at 1.0990 and target at 1.0810
3. Risk sentiment and negative Euro rates continue to favour the US dollar.
4. A strong resistance with bearish MACD is a hint for further price declines.

Fundamental Comments
1. Risk sentiment continues to sour and drives investors towards US dollar holding.
2. Euro negative interest rates discourage long Euro position.

Technical Comments
1. Price faces a strong resistance zone, created by a support turned resistance and 20EMA point
2. MACD is bearish and is hinting of a strong bearish trend

Key Levels

Support 1.08801.08501.0805
Resistance 1.09201.09751.1030

Technical Overview

USD/JPY – Our view on this pair was wrong yesterday. Price continues to move higher instead of reversing. We have seen a new high at 109.55 but MACD is starting to show bearish divergence. Stochastic is into the overbought extreme. We are also near to a strong price resistance point at 109.65. We prefer to remain cautious at the moment and wait for the breakout.

Support 108.60108.05107.65
Resistance 109.05109.65109.90

EUR/USD – Our buy call was stop out yesterday. We lost 45 pips as result. Price has dropped down to 0.5503, which is a 17-year low. We have seen a corrective rally to 0.5630 currently at the time of writing but there is a strong overhead resistance at 0.5715. We think this resistance will halt price rally and there could be another decline as MACD is still bearish and showing no signs of a reversal.

Support 0.56300.55950.5560
Resistance 0.56950.57450.5790

GBP/USD – Sterling dropped 720 pips overnight to a 30-year low at 1.1411. This type of volatility was last seen in the year 2008 and 16 September of 1992 when George Soro made a name for himself. A price recovery is currently underway but this rally is likely to be halted at key resistance point of 1.1640. MACD and Stochastic are both showing divergence but the bearish trend is strong at the moment.

Support 1.15101.14701.1440
Resistance 1.15651.16101.1660

XAU/USD – After an $87 dollar rally yesterday which was halted at a key resistance point, price failed to hold above $1492 and has declined back to the previous day’s low at $1466. Resistance is now at $1492 and if price cannot move above this point, there could be another decline to test the previous low at $1451.

Support 1478.801464.101451.20
Resistance 1492.501504.201518.90

USD/CNH – Price broke above 7.0517 and 7.0887 yesterday and we have seen a move to 7.1223 this morning. 20EMA is pointing higher and its gradient is steep, which is a hint of a strong uptrend. However Stochastic and MACD are at their extreme point. While the trend is bullish, we may see a correction. The next upside target is at $7.20.

Support 7.09207.08057.0615
Resistance 7.11257.12207.1430

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