FX Commentary – Euro Held Firm On Coronavirus Relief Fund Proposal

Market Talk

  • The U.S. dollar drifted lower on Tuesday, after encouraging data from the trial of a vaccine for COVID-19 reduced safe-haven demand for the greenback and sparked growing risk appetite. A report from medical news website STAT later in the day, poured cold water on optimism of vaccine and sparked renewed interest in US dollar and gold.
  • The Euro held firm on Wednesday, basking in the afterglow of a Franco-German proposal for a common coronavirus relief fund, which experts say could deliver a boost to the single currency.
  • Also helping the common currency was a survey showing German investor sentiment improved much more than expected in May as concerns eased over the impact of the coronavirus pandemic on Europe’s largest economy.
  • Gold prices were buoyed by safe-haven demand as economic data showed U.S. home building dropped by the most on record last month and permits for future construction tumbled, a stark reminder of the heavy economic toll exacted by the outbreak.
  • Federal Open Market Committee minutes due at 1800GMT on 20 May 2020. The minutes will be scoured for any clues or discussions that that took place on any new potential policies the central bank is considering and what the Committee had to say, if anything, on negative rates.

Chart Focus USD/CAD
Key Points

  1. Sell USD/CAD recommendation
  2. Sell USD/CAD at 1.3970. Stop at 1.4015 and target at 1.3850
  3. Recovery in crude oil price and reopening of global economies are both likely to weigh on the safe haven US dollar
  4. Price resistance with momentum indicators hinting of more price declines are signs of a bearish trend.

Fundamental Comments

  1. Recovery in crude oil price is likely to benefit the Canadian dollar
  2. Reopening of global economies are likely to increase risk appetite and reduce demand for safe haven US dollar

Technical Comments

  1. Price resistance at a previous support turned resistance and 20EMA point are both likely to cap price advances
  2. MACD is bearish and Stochastic is weak. Both are hinting there could be more price declines.

Key Levels

Support 1.39101.38751.3845
Resistance 1.39551.39901.4025

Technical Overview

USD/JPY – Price reached a high of 108.08 overnight but that high was accompanied by a divergence warning from MACD. This could be a warning of a possible high and a possible reversal to come. Stochastic is also turning down from the overbought zone. There is a possibility of an extension to 108.40 but a move decline below 107.40 is likely to confirm a top is in place a decline to 106.80

Support 107.60107.25106.80
Resistance 108.10108.40108.80

EUR/USD – Our view remains the same as yesterday. We see a continuation of a price move to 1.1015 in the next couple of days. Stochastic is declining from the overbought extreme after a bearish crossover but MACD is still bullish and strong. We may see a corrective pullback before price resumes its climb towards 1.10. 20EMA is strong and bullish with a steep gradient. A price decline below 1.0845 would negate our bullish view.

Support 1.09351.08951.0855
Resistance 1.09751.10151.1050

GBP/USD – Our view remains the same as yesterday. We see 1.2073 as a low and a price recovery to 1.2355 in the next few days. Price had managed to stay above 1.2230 overnight which confirms the bullish trend. MACD has turned bullish and is moving higher which also confirms the bullish trend. Stochastic is into the overbought zone. A move below 1.2220 would negate our bullish view.

Support 1.22301.21751.2120
Resistance 1.22801.23201.2355

AUD/USD – Price tested the recent high of 0.6570 overnight. While price managed to move above, price was unable to sustain above the resistance. MACD is still bullish but Stochastic had bearish crossover in the overbought extreme and is heading lower. 20EMA is still bullish and has a steep gradient, which is a hint of a strong trend. We are expecting a second test of the high again. Watch the reaction for clues.

Support 0.65250.64700.6440
Resistance 0.65700.66100.6660

XAU/USD – Price only reached a low of $1725.96, missing our buy order at $1725. Overnight, price has moved higher to $1750.88. MACD is still bullish and Stochastic is rising. Both indicators are supportive of higher prices. We see price continuing higher to $1764 over the next few days with 20EMA providing support on price dip. A price decline below $1725 would negate our bullish view.

Support 1744.501730.801718.60
Resistance 1750.901758.251764.60

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