FX Commentary – 3.28 Million Jobless Claims Weakened US Dollar

Market Talk

  • The dollar is on track for its biggest weekly fall in more than a decade on Friday as a series of stimulus steps around the world, including a $2.2 trillion U.S. package, calmed a panic over a global recession following the coronavirus outbreak.
  • Data showing an unprecedented rise in U.S. jobless claims underscored the virus’ devastating impact on the economy, but subsequent rise in Wall Street shares raised hopes a torrent of selling in risk assets may have run its course for now.
  • An easing in dollar funding conditions is helping to reduce demand for the dollar. The dollar’s index against six other major currencies lost 1.5%, its biggest daily fall in almost four years. An unprecedented 3.28 million jobless claims in a week, the highest increase ever, is also moving investors into other safe haven currencies.
  • The biggest mover among major currencies was sterling, which rose 2.8% overnight before giving up part of that gain in early Asian trade. The British pound last stood at $1.2183, rising from the previous day’s low of 1.1775.
  • The record $2 trillion U.S. stimulus package itself would have been enough to make gold bugs glow. The all-time high in unemployment claims that followed, however, made being long on the yellow metal even sunnier.

Chart Focus USD/CHF
Key Points
1. Buy USD/CHF recommendation
2. Buy USD/CHF at 0.9600. Stop at 0.9560 and target at 0.9695
3. Positive dollar carry and US stimulus package which is likely to soften economic impact of coronavirus are both likely to weigh on safe haven Swiss Francs
4. Price declined has reached its target and momentum indicators are hinting of a reversal.

Fundamental Comments
1.  Passage of US$2.2 trillion of stimulus is likely to soften the economic impact of coronavirus and weigh on safe haven Swiss.
2. Interest rate differential is in the US dollar favour.

Technical Comments
1. Price decline have reached its targeted Fibonacci 161.8% and we could see a rally.
2. Both MACD and Stochastic are rising. MACD also has a divergence warning of a potential price low.

Key Levels

Support 0.95800.95250.9485
Resistance 0.96300.96750.9715

Technical Overview

USD/JPY -Price moved below the 2-week trend channel yesterday. This could be the start of a decline and price has moved to 108.23 this morning. MACD is starting to turn bearish and moving down. Stochastic is now near to the oversold extreme and we could see a bullish crossover soon.  20EMA on the 4-hourly chart is also starting to turn lower. We see price going lower to 107.60.

Support 108.00107.60107.05
Resistance 108.60109.30109.85

EUR/USD – Price continues to climb, climbing to a high of 1.1086 this morning. MACD is still bullish but Stochastic is already in the overbought extreme. 20EMA is bullish and rising, hinting of a strong bullish trend. We think the upside could be limited. We prefer to be on the short side.

Support 1.10401.09951.0940
Resistance 1.10801.11451.1190

GBP/USD -Price broke out above the previous day’s high at 1.1972 to reach a high of 1.2305 this morning. MACD is starting to warn with divergence. Stochastic is already in the overbought extreme. 20EMA is bullish and rising, and its gradient is steep. 20EMA is warning of a strong bullish trend. We think the upside could be limited to 1.2350 and we prefer to be on the short side.

Support 1.22151.21701.2115
Resistance 1.23051.23651.2420

XAU/USD – Our buy order was not filled yesterday. While we got the direction right, we got the entry level incorrect. Price has exceeded our target and we see a consolidation in price for the next couple of days. MACD has a bearish divergence warning and Stochastic is close to the overbought extreme. We do not see yesterday’s high as the end of the rally but rather as an extended 3rd wave. There should be one more rally after a consolidation

Support 1616.451603.951590.25
Resistance 1629.851643.901658.15

USD/CNH – Price has come back down to the resistance turned support at 7.0518. As long as this support holds, we think price is likely to push higher again to 7.1350. Stochastic has moved lower to near the oversold zone and MACD is turning up although it is in the bearish zone. Below 7.0518, price is likely to decline to 6.98.

Support 7.07107.05157.0335
Resistance 7.09507.11007.1350

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