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

Market Talk

  • The dollar held gains against major currencies on Friday as worries about renewed diplomatic tensions between the United States and China supported safe-haven demand for the greenback.
  • Sino-U.S. relations have soured over a broad range of issues, including China’s treatment of the former British colony of Hong Kong, Washington’s treatment of Huawei and its response to the coronavirus pandemic, which is causing risk aversion to spread.
  • The Yuan nursed losses in offshore trade, but further declines may be limited in the local session on Friday as Chinese Premier Li is expected to unveil stimulus measures at the National People’s Congress to spur its economy, which has been battered by the coronavirus.
  • Sterling was flat against the dollar on Thursday but will likely remain under pressure as the prospect of negative rates has gathered momentum after the U.K. sold its first government bond with a negative yield at auction this week and BOE policymakers said negative rates cannot be ruled out.
  • Nearly 2.5 million more Americans filed for first-time unemployment claims last week, bringing the total number of U.S. job losses from COVID-19 to around 39 million, the Labour Department said on Thursday. Data also showed a flattening of the curve in job losses, suggesting that the unemployment situation, while still bad, might also be improving.

Chart Focus Gold
Key Points

  1. Buy Gold recommendation
  2. Buy Gold at $1722. Stop at $1715.90 and target at $1763.50
  3. Escalating U.S.-China tensions and more American claiming jobless benefits are likely to be supportive of gold
  4. Price halted at the Fibonacci 62% support and both momentum indicators turning up could be signs of a price rally.

Fundamental Comments

  1. Escalating U.S.-China tension is likely to be supportive of gold
  2. Another 2.5 million Americans lost their jobs, bringing the total to 39 million as a result of the COVID-19 is likely to weigh on the US dollar

Technical Comments

  1. Price decline was halted at the Fibonacci 62% of the rally and that could be a sign of a corrective decline
  2. MACD and Stochastic have reached their extreme points and could be turning up, bringing price higher

Key Levels

Support 1722.801710.501698.80
Resistance 1733.951744.301753.90

Technical Overview

USD/JPY – Our view remains the same as yesterday. We were expecting another push toward 108.10 yesterday but price only reached a high of 107.85. This could be the final rally and price could be heading lower over the next few days. MACD is starting to turn bearish. Stochastic is still declining and there is also a bearish crossover. Wait for better trading idea.

Support 107.35106.80106.40
Resistance 107.60108.05108.40

EUR/USD – Our sell order was filled and our stop at 1.1005 was filled as well when price reached a high of 1.1007. Price has declined lower to 1.0920 by mid-day on Friday. We are expecting the decline to continue lower to 1.0875 as our view remains the same as yesterday. MACD is turning down and Stochastic is also declining. Both indicators have not reached their extreme point and we should see further price decline

Support 1.09101.08751.0835
Resistance 1.09451.09851.1010

GBP/USD – A price decline overnight was halted by the Fibonacci 50% of the rally from the low to 1.2295. As long as price is able to hold above this support, we could see a move higher to 1.2355. However a move below 1.2185 is likely to send price lower to 1.2073. MACD is bullish at the moment and Stochastic has a bullish crossover above the oversold zone. We would prefer to stay bullish for a test of 1.2355.

Support 1.21851.21251.2070
Resistance 1.22201.22601.2295

AUD/USD – Price rose to a 10-week high at 0.6615 two nights but has declined lower to 0.6527 today. The high was accompanied by divergence warnings from both MACD and Stochastic, which is a warning of a possible price high and a potential reversal. As price has failed to hold above the 20EMA support at 0.6545, it could be heading lower to 0.6480.

Support 0.65100.64800.6440
Resistance 0.65450.65700.6615

USD/SGD – Price broke out of an Inverse Head and Shoulder chart pattern on the 4-hourly chart and could be heading to the pattern’s price target at 1.4235. Above 1.4235, price should be heading to 1.4280 to test the recent high. MACD is still bullish and rising. Stochastic is still rising and has yet to reach the overbought zone. Both indicators are hinting of further price increases. A decline below 1.4155 would negate our bullish view.

Support 1.42001.41701.4135
Resistance 1.42351.428014310

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