FX Commentary – All Eyes On HK Security Law & Trump’s Response

Market Talk

  • The dollar held its own on Thursday as rising Sino-U.S. tension put crushing pressure on China’s Yuan and provides a counterweight to optimism about the coronavirus recovery. The Chinese Yuan, a barometer of U.S.-China relations, hit a record low of 7.1966 per dollar in offshore trade overnight.
  • US/China/HK issues intensified during the US session with Secretary of State Pompeo sending his report to Congress arguing Hong Kong is now under the purview of China and no longer qualifies for special status treatment by the US. The escalating war of words between the world’s two biggest economies also spilled over to the Australian and New Zealand dollars, as a far more cautious mood holds in currency markets
  • The euro was flat against the dollar, after rising to an eight-week peak of $1.1031 on Wednesday, after the EU unveiled a 750 billion euro plan to support some of the worst virus-hit economies in the bloc.
  • The UK Times reported that UK PM Boris Johnson will be going to Brussels in June to meet with EU leaders, increasing hopes that a Brexit trade deal can be reached between the 2 parties by the end of June 2020. Worries over a Brexit trade deal has weighed on the British pound in recent weeks.
  • Gold was up on Thursday in Asia, with rising U.S.-China tensions driving investors to the safe-haven asset. Expectations that China will pass the HK security law sometime today and US President Trump’s promise to take action on Thursday in response to China passing the HK security bill has stroked increased tension.

Chart Focus USD/CNH
Key Points

  1. Buy USD/CNH recommendation
  2. Buy USD/CNH at 7.1650. Stop at 7.1480 and target at 7.1990
  3. Tensions is likely to escalate when China passes the HK security law and Trump imposes sanctions to counter China passing the security law.
  4. A strong support coupled with bullish MACD is likely a hint of further price upsides.

Fundamental Comments

  1. Trump is likely to impose sanctions on China, escalating tension between the 2 countries.
  2. Passing of HK security law by China is likely to increase Sino-US tension and weigh on the Yuan

Technical Comments

  1. A strong support is provided by the previous resistance turned support and also the 20EMA point
  2. MACD is bullish and hinting of further price upsides.

Key Levels

Support 7.16407.15607.1370
Resistance 7.17907.18857.2000

Technical Overview

USD/JPY – Price continues to move in a tight range yesterday despite an increase in tension between US and China. We are expecting price range to be contained within last week’s range of 108.08 to 107.31 until there is a breakout of either side. MACD is flat and neutral at the moment. Stochastic is still rising. 20EMA is bullish but its gradient is not steep, which is hinting of a sideways movement. Watch the breakout for clues to the next direction.

Support 107.65107.30106.80
Resistance 107.90108.10108.40

EUR/USD – Price made a new 8-week high last night but that high was accompanied by bearish divergence warning from the MACD indicator. While MACD is still bullish, we are wary a high is currently in the making and a possible reversal may occur as MACD has warned with a divergence. Price support lies at the 20EMA point at 1.1000. A decline below 1.0955 would signal a Double Top chart pattern and a reversal in trend. Wait for better trading signal

Support 1.10001.09551.0900
Resistance 1.10351.10601.1095

GBP/USD – Price may have dropped to a low of 1.2204 but this decline looks corrective in nature. If price can hold above 1.2160, we could see another test of 1.2370. MACD is also hinting of further price upside as both its lines are above the zero line. The faster line is starting to rise as well. Stochastic is still on the decline. 20EMA is flat and neutral at the moment. We see another test of 1.2370.

Support 1.22401.22001.2160
Resistance 1.23001.23651.2400

XAU/USD – Price dropped to a low of $1693.75 overnight and this could be the temporary low and a move back up to $1764 could follow. Price needs to move above the 20EMA point of $1720 to confirm the temporary low at $1693. If price cannot move above this point, we could see another test of $1693 as MACD is still bearish and is hinting of further declines. Stochastic is rising from the oversold zone. Watch the reaction at 20EMA on the 4-hourly chart for clues to the next direction.

Support 1713.151700.251693.75
Resistance 1721.201734.401750.10

AUD/USD – Our sell recommendation was filled at 0.6650 yesterday when price rose to a high of 0.6679, just shy of our stop at 0.6685. Price declined late into the night to a low of 0.6566, filling our profit order. We are out with a profit of 80 pips. Price has climbed back up to 0.6634 this morning but we remain bearish for another attempt to the downside at 0.6510. Stochastic is still declining but MACD is still bullish, hinting that this could be a corrective decline in a bullish trend for the next few days.

Support 0.65950.65500.6510
Resistance 0.66350.66800.6715

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