FX Commentary – US Dollar Softer On Economy Recovery

Market Talk

  • The dollar was on the defensive on Tuesday as investors stuck to hopes of a global economic recovery despite heightened concerns over U.S.-China tensions and mass protests in many U.S. cities over the death of a black man in police custody, with Trump threatening to impose martial law on the country.
  • U.S. manufacturing activity eased off an 11-year low in May coming in at 43.1 against the previous month of 41.5. Although the reading was weaker than forecast, it fit into markets’ expectations that the worst of the economic downturn was behind as businesses reopen.
  • Market risk sentiment was hurt only slightly on Monday when Bloomberg reported that China had told state-owned firms to halt purchases of soybeans and pork from the United States, raising concerns that the trade deal between the world’s two biggest economies could be in jeopardy.
  • The Australian dollar, often seen as a proxy bet on the strength of the Chinese economy, fetched $0.6794, having reached its highest levels since late January. Reserve Bank of Australia kept interest rate unchanged at its monetary policy meeting today and offered little in terms of anything new for traders and investors in its forward guidance.
  • UK Times reports Britain is expected to signal compromise on fisheries and “level playing field” trade rules if the European Union backs off from its “maximalist” demands on regulatory alignment and fishing access, according to senior Brussels sources, helping the British pound to a 3-week high against the US dollar

Chart Focus EUR/USD
Key Points

  1. Sell EUR/USD recommendation
  2. Sell EUR/USD at 1.1140. Stop at 1.1175 and target at 1.1050
  3. Riots in the US cities and Chinese official poking at US riots in retaliation could escalate tensions and force investors into safe haven US dollar
  4. Warnings of a possible price reversal from Harami Star and divergences from MACD and Stochastic.

Fundamental Comments

  1. Riots in the U.S. could escalate and decrease risk appetite.
  2. Chinese officials poking at US riots could escalate tensions and force investors into safe haven US dollar

Technical Comments

  1. A Harami Star candlestick price pattern is a warning of a possible price reversal
  2. Divergence in MACD and Stochastic are warning of a possible price high in the making.

Key Levels

Support 1.11151.10801.1040
Resistance 1.11551.11851.1210

Technical Overview

USD/JPY – Price stayed within the range boundaries of 107.30 to 107.90 yesterday and we are expecting price to stay within the range again for today. 20EMA has turned flat, hinting of a sideways movement. MACD is flat and neutral at the moment. Stochastic is still moving higher just below the overbought zone. We would recommend watching the boundaries for breakout signals.

Support 107.55107.30106.80
Resistance 107.95108.10108.60

NZD/USD – Yesterday, price dropped to a low of 0.6221 and our buy recommendation was filled at 0.6225. Price rallied into the night and our profit order at 0.6300 was filled when price reached a high of 0.6305 this morning. MACD is starting to show bearish divergence warning of a possible correction in price while Stochastic is still rising. Stochastic is near to the overbought extreme. Stay aside and wait for better idea.

Support 0.62700.62300.6185
Resistance 0.63100.63400.6370

GBP/USD – Price moved beyond our target to a high of 1.2550 and MACD is still strong and rising. 20EMA is also indicating a strong bullish trend with its steep gradient while news of a compromise on Brexit trade deal between the EU and UK could lift Sterling higher as well. We think there is still a strong momentum to move price higher to test the 1.2642 high.

Support 1.24801.24251.2375
Resistance 1.25551.25801.2640

XAU/USD – Price reached a high of $1743.50 yesterday and a decline from the high managed to stay above $1726.75. As price was supported at $1726.75, the bullish view is still valid and we are expecting price to test $1743.75 or $1753 within the next 24 hours. A movement below $1726.75 would mean a top is in place and further decline to $1693.65 can be expected.

Support 1734.401724.151710.20
Resistance 1744.101753.801764.10

USD/CAD – Our buy recommendation from Friday was stopped out last night when price declined below 1.3695. Overnight price has declined to 1.3530, which is just above the gap zone from 1.3438 to 1.3517. Price is likely to test the gap. MACD is bearish and Stochastic is in the oversold zone. 20EMA is also hinting of a strong bearish trend.

Support 1.35151.34651.3440
Resistance 1.35501.36001.3670

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