FX Commentary – U.S.-China Tension Keep US Dollar Strong

Market Talk

  • The dollar nursed losses against major currencies on Monday after encouraging data from the trial of a vaccine for COVID-19 reduced safe-haven demand for the greenback and gold but renewed U.S.-China tension this morning is driving up demand for the US dollar again.
  • A tweet by China’s Global Times saying Trumps response to COVID-19 pandemic is “witchcraft”, after Trump had threatened permanent WHO funding freeze and will reconsiders US membership, is sending demand back to safe havens again.
  • The editor-in-chief of Global Times tweeted that the 90,000+ US deaths from COVID-19 are due to Trump’s lack of leadership in the crisis, with US President ignoring science and responding with ‘witchcraft’ in its place, following a CNBC’s tweet that Trump said he was taking hydroxychloroguine, which is unproven for coronavirus to prevent COVID-19.
  • Currencies linked to commodities and other riskier assets were broadly supported, thanks to a sharp rebound in oil prices as investors’ focus turned to recovery from the pandemic. Crude oil prices rose for a fourth day amidst signs of demand picking up and producers cutting output as promised.
  • The euro rose to a 10 days high the dollar following a proposal by France and Germany that the European Commission borrow 500 billion euro on behalf of the whole of EU for a recovery fund offering grants to regions hit hardest by the coronavirus crisis.

Chart Focus Gold
Key Points

  1. Buy Gold recommendation
  2. Buy Gold at $1725. Stop at $1709 and target at $1764
  3. Renewed U.S.-China tension and longer process of economic recovery are both likely to weigh on the US dollar and aid Gold.
  4. Price is supported by the 20EMA with MACD hinting of further price upside is a sign of a possible price rally

Fundamental Comments

  1. Renewed U.S.-China tension is likely to aid Gold
  2. Powell’s warning that the process of economic recovery may stretch longer is likely to weigh on the US dollar

Technical Comments

  1. Price is supported by the 20EMA as well as a previous price low support
  2. MACD is bullish and is hinting of further price upsides to come.

Key Levels

Support 1730.801718.601706.30
Resistance 1744.501758.801776.60

Technical Overview

USD/JPY – Price continued to be caught in a tight range again overnight. A break above 107.45 failed to produce a meaningful follow through. Price only reached a high of 107.50 and has dropped back into the range. We see trading continuing within the range of 106.70 to 107.50. MACD is bullish but not strong at the moment. Stochastic is in the middle of its range. Stay aside for the moment for this pair and wait for better trading idea

Support 107.00106.65106.30
Resistance 107.50107.75108.05

EUR/USD – Our bearish view was negated last night when price moved above 1.0900. Price is likely to continue higher to 1.10 unless price fails to hold above 1.0900. Stochastic is into the overbought zone but is still rising. MACD is bullish and rising as well. 20EMA has turned bullish and its gradient is steep. This is a hint of a strong trend that could be at its early stage. We see price going higher to 1.1015

Support 1.08951.08551.0825
Resistance 1.09351.09751.1015

GBP/USD – We may have seen a low at 1.2073. Currently price is trying to push above 1.2230 and a move above this resistance point is likely to confirm 1.2073 as the low and a possible test of 1.2355. Stochastic is rising but has not reached the overbought zone as yet. There is still room for further advances. MACD is also rising from the lower. However MACD is still bearish. 20EMA is turning around. Watch the reaction at 1.2230 for clues to the next directional move.

Support 1.21751.21201.2075
Resistance 1.22301.22801.2320

AUD/USD – Price broke above the neckline of a Double Bottom chart pattern at 0.6470 last night and is heading higher to 0.6540, which is the target of the chart pattern. Price is currently at 0.6550 and is now to test the recent high of 0.6570. A break is likely to lead price higher to 0.6660. Failure could send price back to 0.6470 again. MACD is bullish and rising but Stochastic is into the overbought zone now. Watch the reaction at 0.6570 for clues to the next directional move.

Support 0.65250.64700.6440
Resistance 0.65700.66100.6660

NZD/USD – Price only reached a low of 0.5941 overnight, missing our buy order at 0.5935. Price has rallied overnight to a high of 0.6057 this morning. Stochastic is declining from the overbought extreme but MACD is still bullish. The uptrend should have 1 more up move to 0.6100 if the correction can hold above the 20EMA support around 0.6020. Both 20EMA and MACD are indicating the trend is strong and there is more upside potential.

Support 0.60250.59950.5965
Resistance 0.60550.60800.6120

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