FX Commentary – Japanese Year End Demand Keeps US Dollar Strong

Market Talk

  • The dollar rose against the yen on Tuesday as Japanese investors and companies rushed to cover a shortage of the U.S. currency before their fiscal year end, but sentiment remained fragile as the global coronavirus crisis showed no signs of abating.
  • The US Dallas Fed manufacturing index plunged to a record low of -70 in March (from +1.2 in Feb and well below expectations of -10). This index is in line with the other regional Fed bank measures of manufacturing in New York, Philadelphia area, and Kansas City district which all showed record monthly declines, and gives a grim outlook of the U.S. economy.
  • Analysts warn that an almost certain global recession due to the coronavirus will remain a dominant influence in trading and eventually favour currencies least affected by the economic downturn.
  • The pound fell against the greenback weighed down by Fitch’s rating cut on UK sovereign ratings on Friday with the rating agency saying UK debt levels would jump as it ramped up spending to offset a near shutdown of the economy, underlining the strain on public finances from a much needed massive fiscal stimulus to offset COVID-19 economic impact.
  • China’s official manufacturing purchasing managers’ index bounced to 52.0 in March, up from a record low 35.7 in February and topping forecasts of 45.0. Analysts warned that the index could overstate the true improvement as it measures the net balance of firms reporting an expansion or contraction in activity.

Chart Focus USD/CHF
Key Points
1. Sell USD/CHF recommendation
2. Sell USD/CHF at 0.9640. Stop at 0.9690 and profit target at 0.9485
3. Spread of COVID-19 in USA and poor Dallas Fed manufacturing index are both likely to weigh on the US dollar
4. Price resistance at the 20EMA and a bearish hint from MACD are signs of a price decline ahead.

Fundamental Comments
1. U.S. is now the biggest casualty of COVID-19 and this is likely to weigh on the US dollar
2. Poor US Dallas Fed manufacturing index is likely to weigh on the US dollar.

Technical Comments
1. Price resistance at 20EMA is likely to halt a price rally
2. MACD is bearish and could be turning down, hinting of further price decline.

Key Levels

Support 0.95900.95400.9480
Resistance 0.96500.96900.9750

Technical Overview

USD/JPY – Price has moved up to 108.65 from the low at 107.11. This rally has encountered resistance at the 20EMA point of 108.65. While MACD is still bearish, Stochastic is actually moving higher. If price is unable to move above 108.65 or 109.05, there is a high chance of another decline to 106.30 Above 109.05 would mean the correction is over and price is heading higher to 111.70.

Support 108.10107.65107.10
Resistance 108.70109.20109.65

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. A decline from the high has been supported at the 20EMA point of 1.1010. Although MACD has a bearish divergence warning and Stochastic is declining, if price can hold above the 20EMA, we may see a test of 1.1145 again.

Support 1.09851.09451.0880
Resistance 1.10301.10901.1145

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, price is likely to decline to 1.1920. However MACD is still bullish although Stochastic has started to decline from overbought extreme. We think price may test 1.2485 again and the outcome of this test is likely to determine the next direction.

Support 1.22951.22401.2170
Resistance 1.23651.24351.2485

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 is currently hanging around the 20EMA support at 1615.  Price must stay below 1650 during this consolidation period. A move above this point would mean a resumption of the uptrend.  Stochastic is moving lower but MACD is still bullish.

Support 1606.801596.351585.50
Resistance 1621.801631.801643.90

EUR/AUD – Our sell order was filled when price reached a high of 1.8098 and declined beyond 1.7940 to a low of 1.7808 at the close of New York session. We gained 120 pips. Momentum is still strong although Stochastic in the oversold extreme and MACD is still bearish and moving lower. Price is likely to move to the next support level at 1.7675.

Support 1.77301.76701.7630
Resistance 1.78101.78601.7930

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