FX Commentary – Optimism Over Global Economic Recovery Weakened US Dollar

Market Talk

  • The dollar inched lower on Tuesday as growing optimism about a global recovery from the COVID-19 pandemic and economic re-start hopes supported riskier currencies, though concerns about Sino-U.S. tensions held further moves in check after US blacklisted 33 Chinese companies.
  • From Europe to Japan, restrictions on businesses and movement are lifting and barring a second wave of infections, there is plenty of hope for a swift return to economic growth that was curtailed by the coronavirus pandemic.
  • The handling of the coronavirus pandemic in China and Beijing move to impose security laws on Hong Kong are all seen as potential catalysts for a further deterioration in already testy U.S.-China relations. Following unrest in HK, the USD/CNH drifted back towards its March high after pro-democracy protests again erupted in Hong Kong, prompting a strong response from local security forces.
  • The British pound, meanwhile, was stable but under pressure from the prospect of the Bank of England cutting official interest rates below zero at its next policy meeting in June. The Australian and New Zealand dollars rose about 0.3%, but kept below last week’s highs even as stock markets forged ahead.
  • The single currency Euro was sluggish after data confirming that Germany, the currency union’s biggest economy, fell into recession in the first quarter, as gross domestic product contracted by 2.2%. However Germany Ifo institute said mood among exporters have improved somewhat in May after a “catastrophic” April.

Chart Focus EUR/USD
Key Points

  1. Buy EUR/USD recommendation
  2. Buy EUR/USD 1.0910. Stop at 1.0870 and target at 1.1000
  3. Global economic recovery and a better German Ifo data have improved risk appetite
  4. Price managed to rebound from a support zone and momentum indicators are hinting of further price advances.

Fundamental Comments

  1. Global recovery and re-opening of economies have shifted demand towards riskier currencies.
  2. A better German Ifo data this afternoon showed a better than expected exporter mood and hopes of a quick economic recovery

Technical Comments

  1. Price was supported at a previous resistance turned support and has turned up.
  2. Stochastic is rising and MACD is turning bullish and higher as well.

Key Levels

Support 1.09001.08751.0835
Resistance 1.09451.09851.1010

Technical Overview

USD/JPY – The final push we were expecting from Friday continued to a push higher. This morning we saw a high of 107.92 but both MACD and Stochastic have divergence warnings accompanying this high. This could be a warning of a possible high in the making. However 20EMA is still rising and price is well above the 20EMA at the moment. Price will have to break below the 20EMA to confirm a reversal. Wait for better trading signal

Support 107.65107.35106.80
Resistance 107.90108.35108.65

XAU/USD – Our buy recommendation from Friday was filled on at $1722. Price dropped to a low of $1721.10 on Monday and for today, our view remains unchanged. We are bullish and would advise shifting stop higher to $1721 while keeping profit target unchanged at $1763. Stochastic is rising but is close to the overbought zone. MACD is still bullish and rising. Price should be supported 20EMA point of $1730 for now.

Support 1730.401721.101710.50
Resistance 1740.101753.901764.35

GBP/USD – Fibonacci 62% correction point of the advance from 1.2072 to the high of 1.2295 at 1.2155 managed to halt the decline and price has since recovered to a high 1.2248. . Stochastic is still rising and hinting of more price advances. MACD is neutral at the moment. 20EMA is slightly bullish. As long as price stays above 1.2150, we are likely to see a continuation of the rally to test the high of 1.2295. A break below 1.2150 is likely to target 1.2072.

Support 1.22151.21651.2125
Resistance 1.22601.22951.2340

AUD/USD – Price reached a low of 0.6504 on Friday and has since recovered to 0,6580. Price could be on the way to test the previous high of 0.6615. MACD is bullish and is rising at the moment. 20EMA is rising and its gradient is steep, hinting of a strong bullish trend. Stochastic may have reached the overbought zone but is still looking strong. As long as price stays above the 20EMA support of 0.6550, we see a price rally towards 0.6615 over the next couple of days.

Support 0.65500.65100.6480
Resistance 0.65850.66150.6640

USD/SGD – Price broke above the neckline of a Inverse Head and Shoulder chart pattern and reached its target at 1.4235 and was heading to our next target at 1.4280. Price continued its rally and on Monday we saw a high of 1.4262 before price reverse direction. Price may be on its way to 1.4190 or 1.4175. If price can hold above 1.4170 we can expect another test of 1.4280. Below 1.4170, price is likely to test the low of 1.4110 again. MACD is bullish but Stochastic is turning down from overbought zone.

Support 1.42001.41701.4135
Resistance 1.42351.428014310

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