FX Commentary – Safe Havens Declined On Optimism Of Economies Re-opening

Market Talk

  • Safe havens were weaker on Monday as moves by the U.S. and other countries to re-open their economies raised hopes for a quicker global recovery from a deep recession triggered by the coronavirus health crisis but reports of new outbreaks in South Korea and Wuhan kept the weakness in check.
  • The U.S. economy shed 20.5 million nonfarm jobs in April, the biggest monthly drop ever, vividly illustrating the economic devastation caused by the coronavirus pandemic as government-mandated shutdowns and the prospect of slumping consumer activity forced firms to lay off workers in droves but traders are starting to look past such grim economic numbers as they bet on future growth.
  • The Australian dollar which is a proxy for risk because of its close ties to China’s economy and global commodities, recovered from an early fall to trade at $0.6538. while the NZ dollar held steady against its U.S. at $0.6140.
  • Crude oil price was down on Monday morning in Asia, after its gains from the last session. The Canadian dollar gained against the US dollar and the USD/CAD pair dipped below 1.40 on the back of a recovery in crude oil price.
  • Federal Reserve Chairman Jerome Powell is due to give a key note speech on Wednesday and analysts suspect he will rule out taking rates negative, at least for now. The futures market had implied negative rate in its prices in last Friday’s trading.

Chart Focus USD/CAD
Key Points

  1. Sell USD/CAD recommendation
  2. Sell USD/CAD at 1.3980. Stop at 1.4015 and target at 1.3855
  3. A recovery in crude oil price and optimism of various countries’ economies re-opening are weighing on the US dollar and aiding the Canadian dollar
  4. Double Top chart pattern has a price forecast of 1.3845 and MACD is hinting of further price declines.

Fundamental Comments

  1. A recovery in crude oil price is aiding the Canadian dollar.
  2. Optimism of global re-opening of economies is shifting capital into riskier currencies.

Technical Comments

  1. A Double Top chart pattern breakout is forecasting price decline to 1.3845.
  2. MACD is bearish and 20EMA is declining are signs of a bearish trend and a continuation towards 1.3845.

Key Levels

Support 1.38801.38451.3790
Resistance 1.39351.39701.4005

Technical Overview

USD/JPY – A bottom was made at 105.95 on Thursday and we have seen a 2-day rally that bring price higher. This morning price reached 107.00. Stochastic is overbought at the moment but MACD is now bullish and still trending higher. We think the rally can continue higher to 107.20 or 107.50. 20EMA has also turned bullish and its gradient is steep, hinting of a strong bullish trend. Only a price movement below 106.40 would negate our bullish view for 107.50.

Support 106.65106.30105.95
Resistance 107.10107.50107.90

EUR/USD – Our buy order was filled when price declined to a low of 1.0814 on Friday. Price reached a high of 1.0875 but has declined lower to 1.0840 currently. Stochastic has a bearish crossover just below the overbought zone and MACD is still bearish at the moment. We may see some consolidation first before the directional move. Bring stop higher to 1.0810 and bring profit target lower to 1.0900.

Support 1.08151.07801.0750
Resistance 1.08501.08801.0925

GBP/USD – After reaching a low of 1.2265, price had broken above 1.2400 on Friday to move to a high of 1.2466. Price has decline lower to 1.2415 currently. If price can stay above 1.2390, we should see another test of the previous high at 1.2480 within the next 48 hours. A failure to hold above this support could result in another test of 1.2265. Stochastic is moving higher and is near to the overbought zone. MACD is still bearish as the slow line has yet to cross over the zero line.

Support 1.23901.23601.2315
Resistance 1.24351.24801.2525

XAU/USD – After rallying from the low of $1668, we were expecting price to move higher and test the previous high of $1738. On Friday, price was capped by the resistance at $1721. Price needs to move above this point to advance towards $1738. Failure to move past this resistance could result in a decline back to 1681 or even 1668. Both Stochastic and MACD are turning lower, hinting of more price declines.

Support 1704.051695.651681.50
Resistance 1712.501728.501738.55

AUD/USD – On Thursday, price broke above a Double Bottom’s neckline and has continued to move higher to 0.6560, which is close to the Double Bottom’s price target at 0.6570. A movement above 0.6570 could be limited as both MACD and Stochastic are starting to show signs of bearish divergence. We could be close to the top and we could see a possible reversal. A price decline below 0.6500 would confirm a top in place and a reversal. Watch out for the reversal.

Support 0.65350.65000.6470
Resistance 0.65700.66100.6645

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