FX Commentary – Focus Is On Trump’s Policy Moves

Market Talk

  • The dollar was hemmed into a narrow trading range on Friday as traders’ focus shifted to U.S. President Donald Trump’s response to China’s passage of a national security law for Hong Kong. Trump is expected to announce policy moves that are likely to escalate diplomatic row between the U.S. and China.
  • The yuan pulled away from a record low in offshore trade, but investors remain nervous ahead of Trump’s announcement later on Friday. The Aussie is on course to close near a 11-week high as investors cheered the gradual re-opening of business activity in the country.
  • The greenback was on course for a weekly loss against major currencies as progress in lifting coronavirus lockdowns and stimulus plans in Europe weakened demand for safe havens, but the mood could quickly worsen if Sino-U.S. tensions increase as a result of Trump’s policy decision tonight.
  • The common currency was headed for its second weekly gain against the greenback as the EU’s announcement of a 750-billion-euro coronavirus recovery fund fuelled optimism about the euro-zone economy but release of German retail sales and EU consumer prices later on Friday to measure the health of the euro-zone economy could alter its direction.
  • Sentiment for the pound has been somewhat negative due to calls for the resignation of an influential aide to British Prime Minister Boris Johnson. A lack of progress in EU trade talks and speculation about negative interest rates by the BoE are also weighing on the British pound.

Chart Focus USD/CAD
Key Points

  1. Buy USD/CAD recommendation
  2. Buy USD/CAD at 1.3740. Stop at 1.3695 and target at 1.3850
  3. Crude oil price appreciation could be near an end while US-China tension is likely to move funds into safe haven US dollar
  4. Price may have reached a bottom and Stochastic is hinting of higher prices ahead

Fundamental Comments

  1. Crude oil price had appreciated and stabilized and Canadian dollar may have reached its peak.
  2. US-China tensions could move funds into safe haven US dollar

Technical Comments

  1. Price may have reached a bottom and could be turning up in a pullback
  2. Stochastic had started climbing after going into the oversold extreme, which could bring prices higher.

Key Levels

Support 1.37351.36951.3645
Resistance 1.37851.38251.3865

Technical Overview

USD/JPY – Price broke the lower boundary of its range at 107.30 overnight but the decline was limited to 107.09. We expected a continuation of the decline to 106.80 in the next couple of day. Tonight US policy decision could hasten the decline. Stochastic is still declining and MACD has turned bearish. MACD is also moving lower and has not turned up as yet. 20EMA is also pointing lower which increases our hopes of a test of 106.80.

Support 106.80106.45105.95
Resistance 107.30107.65107.90

EUR/USD – Price continues its climb higher to 1.1110. Stochastic is into the overbought zone but is still pointing higher. MACD is bullish and moving higher as well. Both momentum indicators are hinting of further price upsides in the next few days. 20EMA is bullish and its slope is also steep, which is a hint of a strong bullish trend. We see price moving higher to 1.1140 to 1.1160.

Support 1.10851.10401.1000
Resistance 1.11151.11451.1185

GBP/USD – Price is moving towards the previous high at 1.2362 and both Stochastic and MACD are moving higher as well with price. However, MACD is weaker and there could be a possible bearish divergence warning ahead. 20EMA is still rising and its gradient is steep, which is a hint of a strong bullish trend. We see price testing the resistance at 1.2380 or 1.2420 but remains cautious for a divergence warning of a potential price high.

Support 1.23001.22651.2220
Resistance 1.23651.24001.2440

XAU/USD – Price dropped to a low of $1710 overnight and has been climbing higher, reached a high of $1722.20 this morning. The low was the Fibonacci 50% of the rally of $$1694 to $1726. Price is likely in a consolidation at the moment after reaching the previous high at $1764.60. As long as price stays above $1710, a rally to $1764 is possible but a decline below this point would call for a deeper correction as MACD is still bearish and Stochastic could be turning down.

Support 1710.201700.251693.75
Resistance 1720.601734.401744.10

USD/CNH – Our buy call was filled yesterday when price dropped to a low of 7.1536. A recovery led price higher to 7.1766 but inability to sustain at the high level has seen price declined back to 7.1650. We would recommend bringing stop higher to yesterday’s low of 7.1535 while keeping target at 7.1990. We expected Trump’s policy decision to escalate tension between the 2 countries and US dollar to move higher tonight. MACD is still bullish and Stochastic could be turning up.

Support 7.15357.13557.1180
Resistance 7.17207.18857.2000

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