FX Commentary – US Stimulus Halted US Dollar’s Decline

Market Talk

  • The dollar halted its decline with Congress looking poised to agree to a US$2 trillion stimulus package and the Federal Reserve on stand-by for limitless quantitative easing. The greenback funding market remains tight, which is also keeping the US dollar strong.
  • Gains in riskier currencies petered out on Wednesday as fresh rises in coronavirus cases kept markets on edge and. the World Health Organization warned that New York could become the next epicentre of the pandemic.
  • The U.S Federal Reserve’s offer of unlimited bond-buying, on top of opening discount dollar funding lines to central banks around the globe, has supported risk sentiment for the past day along with hopes for a huge U.S. fiscal stimulus package.
  • The British pound surged on Tuesday as traders shrugged off the U.K government’s tougher lockdown measures, which will see swathes of the economy, shut down for at least three weeks at a time when the services sector has been hit by the Covid-19 pandemic.
  • Philly Fed March Non-manufacturing index came in at -12.8 vs +36.1 in the prior month. Data is a warning of a slowing of the US economy due to the impact of the coronavirus. With shutdown, things are looking gloomy ahead.

Chart Focus USD/CNH
Key Points
1. Buy USD/CNH recommendation
2. Buy USD/CNH at 7.0710. Stop at 7.0480 and target at 7.1325.
3. Funding pressure and spread of coronavirus are likely to increase demand for safe haven US dollar
4. Price has reached a support zone and momentum indicators are hinting of a possible price rally

Fundamental Comments
1. Funding pressure still exist despite the Fed’s injection of liquidity
2. Spread of the coronavirus is likely to drive demand for safe haven US dollar

Technical Comments
1. Price touched a strong support zone with a Hammer candlestick price pattern which is a sign of a possible price low.
2. Both MACD and Stochastic are turning up, hinting of a price rally ahead

Key Levels

Support 7.07057.05607.0385
Resistance 7.09207.10657.1330

Technical Overview

USD/JPY -Price has moved higher over the past 2 weeks from a low of 101.17 to last Friday’s high at 111.49. There is a divergence warning from MACD and price has also formed a Triple Top chart pattern and has declined close to the lower trend line of the 2 weeks trend channel. However, price managed to stay above the trend line and test the Triple Top high again this morning. A move above will target 112.20 while failure is likely to lead price back to the 20EMA support at 110.55

Support 110.95110.40109.85
Resistance 111.50112.20112.45

EUR/USD – Our sell call was stopped out yesterday with a loss of 50 pips. On the 4-hourly chart, the high formed was in the form of a shooting star pattern, which is a sign of a possible market top. Stochastic is also starting to turn lower while MACD is neutral at the moment. 20EMA is also flat at the moment. We think the corrective rally may have ended at 1.0887 and we favour a decline

Support 1.07851.07451.0705
Resistance 1.08251.08851.0930

GBP/USD – Last Friday’s range formed an Outside Range Day price pattern with Thursday’s range and we are expecting price to stay within Friday’s range for today after price had stayed within the range in the previous two days. We are approaching the top end of the range and a break above will likely lead price higher to 1.20. Stochastic is in the overbought zone.

Support 1.18151.17651.1705
Resistance 1.18551.18901.1935

XAU/USD – Price continued its rally higher to $1636.25 overnight. We may see a pullback towards the 20EMA at $1578. Both momentum indicators are hinting of limited price upsides and a need for a price correction. The bullish trend is still intact. Look to buy dip towards $1578 for $1650.

Support 1603.951585.051571.85
Resistance 1617.601636.451650.60

USD/CAD – Price has been capped at 1.4540 this week and is declining towards the neckline of a possible small Double Bottom chart formation. A break of this neckline at 1.4335 is likely to lead price lower to 1.4160. MACD is creeping below the zero line and is starting to turn bearish. Stochastic has a bearish crossover and is moving lower as well.

Support 1.43351.42751.4160
Resistance 1.43801.44501.4500

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