FX Commentary – US Dollar Weakened On Negative Rates

Market Talk

  • The dollar cut gains on Tuesday as President Donald Trump stoked fresh worries about negative interest rates after calling on the central bank to do more easing. Trump said the Fed should follow its foreign counterparts and cut rates into negative territory to give the U.S. economy a much-needed boost as signs of economic damage continue to mount.
  • U.S. consumer prices dropped 0.8% in April, the biggest since the Great Recession, raising the spectre of deflation as the economy sinks deeper into recession and fuelling the debate about policy responses.
  • Despite a string of data showing the U.S. economy is set for a long road to recovery, several Fed members are against the idea of negative interest rates. Traders are looking to Fed Chairman Jerome Powell’s speech tonight amid rising speculation the United States could one day adopt negative interest rates.
  • The Australian currency stepped back to $0.6473 from Monday’s one-week high of $0.6562.  It took a hit on Tuesday after China banned some Australian meat imports. NZ dollar plummeted as RBNZ leave interest rate unchanged but increases its QE program.
  • The British pound stood near its lowest levels in five weeks at $1.2264, weighed down by continued confusion over government plans to ease lockdown measures, the worst COVID-19 death toll in Europe and revived Brexit risks.

Chart Focus USD/JPY
Key Points
1. Buy USD/JPY recommendation
2. Buy USD/JPY at 107.05. Stop at 106.70 and target at 107.75
3. Re-opening of economies and Fed’s members against negative interest rates are both likely to be supportive of the US dollar
4. Price coming into a strong support zone with MACD bullish and turning up is a good sign of price trending higher.

Fundamental Comments
1. Feds’ members are against negative interest rates, which is likely to be supportive of US dollar.
2. Risk appetite has increased as global economies re-open, which is likely to weigh against the safe haven yen.

Technical Comments
1. Price is supported by the 20EMA as well as the Fibonacci support at 50%
2. MACD is still bullish and could be turning up.

Key Levels

Support 107.00106.65106.20
Resistance 107.40107.75108.05

Technical Overview

USD/SGD – Price has been moving in a Triangle pattern on the 4-hourly chart with the boundaries at 1.4200 and 1.4100. MACD is bullish but flat at the moment. Stochastic is still rising and we favour a break of 1.4200 for price to move higher to 1.4250. 20EMA is rising which is supportive of our bullish view.

Support 1.41601.41251.4090
Resistance 1.41951.42301.4275

EUR/USD – Price broke above 1.0880 yesterday but there was no follow-through. Price declined but was support above 1.0840. 20EMA support is at 1.0835 and as long as price stays above this support, there is a chance we may see a test of 1.0880 again and later 1.0925. Stochastic is still rising while MACD is still bullish.

Support 1.08351.07951.0765
Resistance 1.08801.09251.0950

GBP/USD – Price reached a high of 1.2376, filling our sell order. Price fell to a low of 1.2250 and we are out with a profit of 90 pips. We think 1.2250 could be a temporary low and we see a small pullback to 1.2290 and from there we could see another decline below 1.2250. MACD is still bearish but Stochastic is currently rising from the oversold zone.

Support 1..22501.22201.2190
Resistance 1.22901.23451.2385

XAU/USD – Price range was smaller yesterday, which is a sign of a price consolidation. A price decline was halted above $1690. Price rallied to test $1710 but was unable to break above. Stochastic is rising on the hourly chart and MACD is also rising. Play the range of $1690 to $1710 or stay aside for the moment.

Support 1691.151681.501668.80
Resistance 1706.301715.501728.50

NZD/USD – Price dropped to a low of 0.5999 this morning after RBNZ left rate unchanged but expanded its QE program. On the hourly chart, there is a Hammer candlestick price pattern which hints of a possible price low and a possible rally to 0.6060 in the next 48 hours. Stochastic is in the oversold zone but MACD is still bearish at the moment. A move below 0.6000 is likely to continue the decline.

Support 0.60000.59700.5945
Resistance 0.60300.60550.6095

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