FX Commentary – US Dollar Caught Between Lockdown Easing And US-China Tension

Market Talk

  • The dollar held its ground on Monday as concern about global tensions with China dampened improving sentiment from easing coronavirus lockdowns. Italy announced plans to lift travel curbs next month and parts of the United States emerged from lockdowns but growing tensions forced currency traders to raise their guard.
  • The Trump administration’s move to block chip supplies to Huawei Technologies is the latest Sino-U.S. flashpoint, with markets waiting on edge for a response, after China’s Global Times newspaper flagged possible retaliation.
  • The pound declined to $1.2073 on Monday morning, its lowest since late March, after a week of deadlock with the EU over a post-Brexit trade deal and the Bank of England’s chief economist considering negative interest rates in a Saturday newspaper interview.
  • Gold rose to the highest in more than seven years on Monday morning, continuing its rally from Wednesday after the Fed had warned that stocks and asset prices could suffer a significant hit from the coronavirus pandemic, and warned the process of economic recovery may stretch through until the end of next year.
  • Japan’s economy slipped into recession for the first time in 4-1/2 years, contracting at an annualized 3.4%, putting the nation on course for its deepest post-war slump as the broadening impact of the coronavirus outbreak causes lockdown and supply chain disruptions and ravage businesses and consumers.

Chart Focus NZD/USD
Key Points

  1. Buy NZD/USD recommendation
  2. Buy NZD/USD at 0.5935. Stop at 0.5895 and target at 0.6010
  3. Improving sentiment about global economies and poor US Retail Sale data are both likely to weigh on the US dollar
  4. A completed 5-waves movement with both Stochastic and MACD divergence is a hint of a low in price

Fundamental Comments

  1. Improving sentiments as economies reopen is weighing on the US dollar
  2. US Retail Sales declined 17.2% last month, which is likely to weigh on the US dollar

Technical Comments

  1. A 5-waves price movement seems to have been completed at the low of 0.5922.
  2. Stochastic and MACD have both given divergence warnings hinting of a possible price bottom

Key Levels

Support 0.59450.59200.5890
Resistance 0.59900.60150.6045

Technical Overview

USD/JPY – Our buy order from Wednesday is still pending with stop at 106.70 and profit at 107.75. On Friday, price’s range was inside the range of Thursday, forming an Inside Range Day. Stochastic is still declining while MACD is flat and neutral at the moment. We would recommend closing out the position for a small gain and wait for the breakout of Thursday’s range boundaries at 106.70 and 107.45 to follow in the direction of the breakout.

Support 107.00106.65106.30
Resistance 107.40107.75108.05

EUR/USD – Our view remains the same as the previous week. We remain bearish for a test of 1.0725 as long as price stays below 1.0900. However, Stochastic is rising at the moment. We may see a pullback to higher level before the decline as MACD is still hinting of a bearish trend. A price move above 1.0900 would confirm a low at 1.0775 and a test to the previous high at 1.1015.

Support 1.07951.07651.0725
Resistance 1.08251.08551.0895

GBP/USD – Price reached a low of 1.2073 this morning but MACD has yet to give a divergence warning. It means that price could go lower. 20EMA is pointing lower and its gradient is still steep and hinting of a strong bearish trend. The next target comes in at 1.2030 which is the Fibonacci 161.8% of the decline from 1.2642 on April 30 to 7 May’s low at 1.2265. 20EMA resistance is likely to cap price at 1.2180 for a test of 1.2030.

Support 1..20751.20301.1975
Resistance 1.21201.21651.2210

XAU/USD – Price has moved above its previous high of $1748 as well as its Fibonacci 161.8% expansion point at $1755. The next price target is at the Fibonacci 200% expansion point at $1778. Stochastic is in the overbought extreme but is still rising and looks strong. MACD is bullish and rising at the moment and we could see $1778 within the next 48 hours.

Support 1755.151747.151738.55
Resistance 1762.601776.601790.50

AUD/JPY -On Friday’s night, price reached a low of 68.63 and this morning, price reached a low of 68.62. Price may have made a low as both Stochastic and MACD have shown divergence warning of a possible low. Price is currently just below 69.00 and it would be best to close the position for a 30 pips gain. 20EMA is still pointing lower but is getting flatter, hinting of a possible turning around of the trend. Fibonacci 62% of the rally also comes in at 68.55. Stay aside and wait for better trading idea.

Support 68.9068.6068.15
Resistance 69.1569.5569.85

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