FX Commentary – US Dollar Gained On Trade War Fears

Market Talk

  • The dollar extended its rally at start of the month that began on Friday when bleak U.S. data and the threat of fresh trade-war hostilities between the world’s two biggest economies led to growing unease at the gulf between asset prices and grim economic reality that turned investors cautious.
  • A threat by President Donald Trump to impose new tariffs on China in retaliation as the two countries staged a war of words over the origin of the COVID-19 virus outbreak which soured investor sentiment.
  • In thin trade on Monday morning, with China and Japan on holiday, the safe-haven U.S. dollar rallied to one-week highs against the risk sensitive Australian and New Zealand dollars on fears that the world’s two largest economies could resume a trade war.
  • U.S. manufacturing plunged to an 11-year low last month as lockdowns shuttered factories according to the ISM purchasing managers’ index. Consumer spending collapsed as some 30.3 million Americans have filed claims for unemployment in the last six weeks.
  • Gold rose to $1700 on Monday morning in Asia on the back of heightened U.S.-China tensions over the weekend after falling to a low of $1668.63 on Labour Day Friday.

Chart Focus EUR/USD
Key Points

  1. Sell EUR/USD recommendation
  2. Sell EUR/USD at 1.0950. Stop at 1.0990 and profit target at 1.0875
  3. Threat of trade war and interest rate differential are both favouring the US dollar against the Euro.
  4. A Shooting Star candlestick price pattern and momentum indicators bearish are sign of further price declines.

Fundamental Comments

  1. The threat of fresh trade-war hostilities between the world’s two biggest economies is favouring the US dollar.
  2. Interest rate differential is favouring the US dollar with Euro having negative rate.

Technical Comments

  1. A Shooting Star candlestick price pattern is a hint of a possible price high and a reversal in trend.
  2. Momentum indicators are both moving lower, hinting of possible price declines ahead.

Key Levels

Support 1.09301.08751.0835
Resistance 1.09701.10151.1045

Technical Overview

AUD/USD – Price reached a high of 0.6569 on Thursday and has been declining. Today price reached a low of 0.6372 and Stochastic and MACD are both suggesting this could be a possible low or near to a low. We are likely to see a correction in price to 0.6450, which is where the 50EMA point lies and also the Fibonacci 38% of the decline from Thursday till today. If price fails to hold the low, the decline could continue to 0.6335.

Support 0.63700.63350.6285
Resistance 0.64100.64650.6495

USD/JPY – On Friday, price stayed within the range of Thursday. Today, we have a Japanese holiday and we are expecting price to stay in a tight range as well. Thursday’s range of 107.49 and 106.38 are the points to watch out for. MACD is still bearish but is moving higher. Similarly Stochastic is near to the oversold zone and is moving higher. We would prefer an upside break but are wary of trade war which would favour safe haven yen.

Support 106.50106.10105.60
Resistance 106.80107.10107.50

GBP/USD – Price reached a high of 1.2642 on Thursday, creating a possible Double Top chart pattern in conjunction with the high on 14 April 2020. Price has declined to a low of 1.2423 currently but there is still no sign of a possible bottom as yet. We could see price falling to 1.2320 within the next one or two days. Stochastic is into the oversold zone but MACD is still bearish and showing no sign of turning up as yet.

Support 1.24001.23601.2315
Resistance 1.24551.24951.2555

XAU/USD – We have seen a deeper correction to $1668.63 but price will need to move above $1709 to confirm a bottom has been made. While Stochastic is rising from the oversold zone, MACD is still bearish at the moment. 20EMA is unable to confirm as it is flat at the moment and not indicating any trend. We would prefer a movement higher as trade war fears drive demand for safe haven.

Support 1695.101683.551668.80
Resistance 1705.101721.401738.55

USD/CNH – Price reached a high of 7.1557 this morning. If price is unable to move above 7.1580, a possible Double Top chart pattern is likely to form, which is a signal of a possible reversal. MACD has a bearish divergence warning and Stochastic is moving lower at the moment. We think price is likely to be capped at 7.1560 and move lower. Above 7.1580 will target 7.20.

Support 7.13057.11907.1085
Resistance 7.15607.16807.1885

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