FX Commentary – US Dollar Continues To Hold Gains

Market Talk

  • The dollar and yen held broad gains on Wednesday, as a bounce in oil prices failed to calm market nerves, with the week’s rout and frail fuel demand underlining a grim outlook for the global economy and fears of a deep economic downturn.
  • The plunge in crude oil price and the US equity market overnight, led lower by the energy sector, have soured appetite for risk as investors brace for a longer and slower global economic recovery and moved into safe haven US dollar and Japanese yen.
  • The pound struggled under pressure amid concerns about weaker inflation data and fresh worries about a no-deal Brexit ahead of trade talks between the EU and U.S. set for next week. A gloomy assessment of recovery prospects from the Bank of England’s chief economist added to the pressure.
  • USD/CAD rose to the highs of the day in European hours at 1.4265 as a retreat in crude oil price weighs on the oil-sensitive Canadian dollar. A grim prospect for crude oil price is likely to keep the Canadian dollar and other oil-sensitive currencies weak.
  • Australia’s central bank governor, Philip Lowe, said on Tuesday that the country is likely to experience its biggest contraction in output since the 1930s, and that a quick return to business as usual should not be expected.

Chart Focus USD/CNH
Key Points

  1. Buy USD/CNH recommendation
  2. Buy USD/CNH at 7.0925. Stop at 7.0780 and target at 7.1200
  3. Coronavirus cases and death toll together with a oil price plunge and slower economic recovery are likely to favour safe haven US dollar
  4. Price has managed to stay in a bullish trend above the Fibonacci 50% and bullish momentum and trend indicators are hinting of higher prices

Fundamental Comments

  1. Risk-off mode favours the US dollar as investors brace for a longer and slower global economic recovery.
  2. Continued coronavirus cases and death toll are likely to move capital into safe haven US dollar.

Technical Comments

  1. Price has managed to stay above the Fibonacci 50% correction point and has headed higher and is likely to test the high again.
  2. MACD and 20EMA are both bullish and heading higher, hinting of more price advances

Key Levels

Support 7.09207.08407.0740
Resistance 7.10907.12007.1330

Technical Overview

USD/JPY – Price has been struck in a 107.20 to 107.90 range for the past 3 days. Price is currently in the middle of the range below the flat 20EMA. Stochastic is declining from overbought zone but MACD is still bullish at the moment. We think price is likely to range again today. We recommend watching the range boundaries for the next directional movement.

Support 107.55107.25106.90
Resistance 107.90108.35108.60

EUR/USD – Price has been caught in a range of 1.0810 to 1.0890 for the past 3 days. Stochastic is heading lower from the middle of its range but MACD is still bullish at the moment. We favour the downside to 1.0770 but our preferred movement may not happen soon. We think price is likely range for today. Watch the range boundaries for clues to the next direction.

Support 1.08451.08101.0770
Resistance 1.08801.09151.0945

GBP/USD – Price was capped below 1.2480 and we saw a test to 1.2245, which is just above our target price of 1.2225. While there is no divergence, it does seem like we may have seen a base and a likely correction to follow after 5 days of decline. The next resistance lies at 1.2380. MACD is moving higher from a low extreme and Stochastic is also moving higher from the oversold zone.

Support 1.22701.22451.2205
Resistance 1.23151.23801.2440

XAU/USD – Price was capped at $1702 and 20EMA resistance at $1695 and we saw a move back to break the $1671 support. Price reached a low of $1658.55. This could be the correction low as MACD has given a divergence warning. However MACD is still bearish and there could be one more test to $1658 or lower if price is unable to move able the 20EMA at $1691. Stochastic has also been rising. Wait for confirmation of a low.

Support 1675.651658.551640.90
Resistance 1691.201702.301717.70

AUD/JPY – Our sell call was filled this morning when price surged to a high of 68.46. Stochastic has started to turn down but MACD is still bullish at the moment. Price has declined below the 20EMA and this could be the immediate resistance. Our view remains unchanged. We are looking for a price decline to 0.6700. We would recommend bringing stop lower to 0.6820 while keeping target unchanged.

Support 67.5566.9566.60
Resistance 68.1568.5568.90

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