FX Commentary – Market Favours Riskier Currencies To Safe Havens

Market Talk

  • The dollar slipped on Monday, continuing a trend from Friday, as investors looked past unrest in the United States to the continued economic recovery from the coronavirus and hoped for an easing in heightened Sino-U.S. tensions over China’s move to tighten control over Hong Kong and Washington policy decision to sanction.
  • Investors were relieved that Trump’s policy decision did not escalate tension over Hong Kong into a broader trade dispute, as Trump made no move to junk the Phase 1 trade deal with China, helping the Chinese Yuan to recover and keeping Sino-US tensions in check.
  • Data on Sunday painted a mixed picture of China’s recovery, with momentum gaining in the construction and services sector even as factory activity growth slowed a touch, helping the risk-sensitive Australian dollar shrugged off early pressure and gained to hit a three-month high of $0.6703.
  • Data on Friday showed German retail sales fell at their fastest pace since 2007 in April, but the drop was not as steep as expected in a sign of the relative resilience of Europe’s largest economy during the coronavirus crisis helping the Euro dollar move above 1.11 against the US dollar
  • Gold gained on Monday as images of riots in burning U.S. cities unnerved investors already tense over Washington’s power struggle with Beijing.

Chart Focus NZD/USD
Key Points

  1. Buy NZD/USD recommendation
  2. Buy NZD/USD at 0.6225. Stop at 0.6180 and target at 0.6300
  3. Better China’s economic data, optimism over global economic recovery and limited sanctions over HK are weighing on the safe haven US dollar and aiding riskier currencies.
  4. An Ascending Triangle chart pattern and bullish momentum indicators are hinting of further price upsides.

Fundamental Comments

  1. Trump’s policy decision over HK security law was not wide ranging and did not broadened to trade deal with China, keeping Sino-US tension in check.
  2. Optimism over continued global and China’s economic recovery, with better China’s economic data, is aiding demand for riskier currencies like NZ dollar

Technical Comments

  1. Price has broken above an Ascending Triangle chart pattern which is hinting of further price upsides.
  2. Both Stochastic and MACD have bullish crossover and both are hinting of further price upsides

Key Levels

Support 0.62150.61850.6145
Resistance 0.62450.62750.6310

Technical Overview

USD/JPY – Price broke the lower boundary of its range at 107.30 on Friday but the decline was limited to 107.07. We expected a continuation of the decline to 106.80 but price rebounded back into the range again after Trump’s announcement. Stochastic is still rising and there could be further upside. However MACD is flat and this bounce could turn into a sideways movement. 20EMA is flat as well hinting of a non-trend.

Support 107.30106.80106.45
Resistance 107.65107.95108.10

EUR/USD – Prices continues its climb higher to 1.1145 on Friday. There was a decline to 1.1080 but price has bounced back to 1.1140 this morning. We are expecting price resistance at 1.1170 to cap this advance and provoke a correction lower as MACD is showing bearish divergence again. However as Stochastic is still rising, we can expected another push towards the resistance at 1.1170. A move below 1.1080 would confirm the reversal in trend.

Support 1.11151.10801.1040
Resistance 1.11451.11851.1210

GBP/USD – Price has reached 1.2414 this morning, just shy of our second target at 1.2420. Stochastic is warning with a divergence. MACD is also developing a potential divergence warning. We think the upside could be limited for now and a correction back to 1.2320 could be looming ahead. However 20EMA is still rising and its gradient is steep, which is a sign of a strong trend. We could see a possible extension to the next resistance point at 1.2465.

Support 1.23651.23201.2265
Resistance 1.24201.24651.2510

XAU/USD – Prices continues its climb higher to $1742 at the time of writing. Price had reversal its direction after hitting a low of $1693 on Wednesday. We see price climbing to Fibonacci 161.8% of the rally from $1693 to $1727 at $1747. We may see a correction before the rally resumes or there could be further upsides to $1763. MACD is still strong but Stochastic is into the overbought zone. However 20EMA is rising and its trend is strong.

Support 1734.401724.151710.20
Resistance 1744.101753.801764.10

USD/CAD – Our buy recommendation was filled on Friday at 1.3740 when price reached a low of 1.3714. Price rallied to a high of 1.3831 during Friday’s night but our profit order at was not filled at 1.3850. This morning price declined to 1.3697, just shy of our stop at 1.3695. MACD has turned bearish and Stochastic is still declining. Price may continue to decline. We suggest keeping stop at 1.3695 and profit order at 1.3850.

Support 1.36951.36451.3605
Resistance 1.37351.37851.3825

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