FX Commentary – Funds Flows Continue To Dominate Fundamental

Market Talk

  • The dollar slowed its descent after a week of declines and the safe-haven yen edged ahead on Monday, as coronavirus lockdowns tightened across the world and investors braced for a prolonged period of uncertainty.
  • The moves came after the dollar had surged amid a scramble for cash and then subsided as central bank launched unprecedented liquidity measures. As signs of funding stress have eased, but not abated, the dollar remains at elevated levels.
  • Flows continue to dominate fundamentals and quarter-end is a part of that. The dollar finished on the lows except against the commodity currencies in part on the Fed’s diminished plans to buy bonds
  • The pound continued to rack up gains on Friday and remained on track to snap a two-week losing streak against the U.S. dollar, even as data showed the biggest rise in coronavirus deaths in the UK so far, threatening to keep economically-burdensome lockdown measures in place for a prolonged period.
  • Despite the dollar weakness, gold was unable to find a bid. A few forays to $1630 fell flat and price stayed within a range of $1608 to $1630 for the day.

Chart Focus EUR/AUD
Key Points
1. Sell EUR/AUD recommendation
2. Sell EUR/AUD at 1.8060. Stop at 1.8120 and target at 1.7940
3. As the coronavirus risk shifted from Asia to Europe and with Europe zone economies facing lockdown, Euro is likely to be weighed down.
4. Price has been capped by a 20EMA and with momentum indicators hinting of further price declines, is a sign of further price declines going forward

Fundamental Comments
1. Coronavirus risk has shifted from China and Asia to Europe and is likely to weigh on the Euro
2. Aussie dollar is likely to benefit from China’s gradual move to reopen production line

Technical Comments
1. Price has been capped by the falling 20EMA.
2. MACD and Stochastic are both turning down, hinting of further price declines.

Key Levels

Support 1.80151.79401.7860
Resistance 1.80651.81151.8165

Technical Overview

USD/JPY – Price moved below the 2-week trend channel on Thursday and has declined to 107.11 this morning. MACD is bearish but is moving upward towards the zero line. Stochastic is in the oversold extreme. 20EMA on the 4-hourly chart is moving lower and has a steep gradient, hinting of a strong bearish trend. The next support level is at Fibonacci 50% correction point at 106.30 if price is capped below 109.00.

Support 107.50107.10106.70
Resistance 108.15108.55109.05

EUR/USD – Price has reached a high of 1.1146 which is close to the Fibonacci 62% correction point of the decline from 9 March high of 1.1491 to 20 March low at 1.0637. MACD has a bearish divergence warning and Stochastic is into the overbought extreme. If price is unable to move above 1.1165, it is likely to decline back to 1.0830.

Support 1.10651.10101.0970
Resistance 1.11051.11651.1235

GBP/USD – Price reached a high of 1.2485 on Friday which was also Fibonacci 62% of the decline from the high of 1.3200 to the low of 1.1332. If price is unable to move this resistance point, it is likely to decline and the trend could turn bearish as well. Stochastic is into the overbought extreme and MACD, while bullish is starting to turn down towards the zero line. Above 1.2500, we could see a move to test the previous high of 1.3200.

Support 1.23601.22951.2205
Resistance 1.24351.24851.2525

XAU/USD – Gold may have reached a temporary high at 1643.90 and we could see a price consolidation around the 1600 level for a few days. Price may also decline back to 1570 as part of the correction as well. Price must stay below 1650 during this consolidation period or we may need to re-evaluate the situation. Stochastic is moving lower but MACD is still bullish.

Support 1610.501596.351585.50
Resistance 1623.251631.751643.90

USD/CHF – Our buy call on Friday was wrong and we lost 40 pips. The Swiss continued to strengthen on Friday but this morning, we have seen a price recovery to 0.9565, which was a price resistance level. Stochastic is still rising but MACD is bearish and has started to turn lower. Price has also been capped by the 20EMA at 0.9560. We think price is likely to decline lower to 0.9490 again today.

Support 0.95350.94800.9430
Resistance 0.95800.96300.9675

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