FX Commentary – Investors Moved Into Riskier Currencies On Optimism of Economic Recovery

Market Talk

  • The U.S. dollar was down on Wednesday morning in Asia, continuing a trend from the previous day after increasing prospects and optimism of more government stimulus and a global economic recovery from COVID-19 emboldened investors to step up holdings of riskier assets.
  • The yen gave back its pandemic gains and broke above its recent upper range boundary as investor focus on the prospects of a COVID-19 recovery rising to a 2-month high of 108.84 in Wednesday’s morning early trading.
  • The Australian dollar rose early in Asian trading to $0.6930, a five-month high against the dollar, as funds headed toward economies that are seen to be recovering the fastest from the coronavirus pandemic and a day after RBA kept its interest rate and yield objectives unchanged and focused on the prospects for a speedy recovery from the coronavirus shock.
  • The euro has retained its recent strength from Tuesday, having been boosted by last week’s EU stimulus package, and ahead of Thursday’s meeting of the European Central Bank, where it is widely expected to raise its asset buying by around 500 billion euros to 1.25 trillion.
  • China’s Caixin/Markit services PMI reading for May was 55, indicating a return to growth for the country’s services sector for the first time since January, and reinforcing investor appetite for riskier currencies.

Chart Focus USD/JPY
Key Points

  1. Buy USD/JPY recommendation
  2. Buy USD/JPY at 108.20. Stop at 107.85 and target at 109.20
  3. Optimism of a global economic recovery from COVID-19 and interest rate differential are both against the safe haven Yen.
  4. Price pullback offers an opportunity to buy with MACD hinting of further price upsides

Fundamental Comments

  1. Optimism of a global economic recovery from COVID-19 is driving investors away from safe haven Yen.
  2. Interest rate differential is in US dollar favour with JPY having a negative carry

Technical Comments

  1. Price pullback could be the 4th wave movement and there could be another push higher to end the rally.
  2. MACD is bullish and is hinting of further price upside.

Key Levels

Support 108.40107.95107.55
Resistance 108.85109.20109.65

Technical Overview

USDCNH – Since the peak at 7.1961 on 27 May, price has declined to a low of 7.0848 this morning. The bearish trend does not look completed as yet. We think there should be another decline to 7.0730. We would like to sell the corrective rally to 7.1300 for the decline to 7.0730 Stochastic is moving up from oversold zone but MACD is bearish at the moment.

Support 7.10907.09607.0850
Resistance 7.12107.13607.1520

EUR/USD – Our call was wrong yesterday. Despite the technical warning, this pair continues to rally above 1.12. We lost 35 pips yesterday. While the trend is bullish and strong, MACD has again given a divergence warning as price makes a new high. Stochastic is also in the overbought zone. We are bullish but remain cautious of a possible reversal.

Support 1.11901.11501.1115
Resistance 1.12351.12651.1290

GBP/USD – Price rose to a high of 1.2612 this morning but we are expecting it to move higher to test the 1.2642 resistance within the next 24 hours. MACD is still strong and bullish. Stochastic is in the overbought zone but is still strong. 20EMA is rising and its slope is steep, hinting of a strong bullish trend. Only a price move below 1.2400 would negate our bullish view.

Support 1.25651.25251.2480
Resistance 1.26101.26501.2725

XAU/USD – Price declined below $1726, which invalidated our 5-movement structure. Price had only reached a high of $1744.65 and had turned bearish with a strong and long bearish candlestick. We are expecting price to move lower to $1710 and if this support fails to hold, price is likely to move to $1693 again. Stochastic is declining and MACD is turning down as well. Both indicators are hinting of further price declines.

Support 1720.301710.201693.65
Resistance 1731.701744.651753.80

USD/SGD – Price has broken below 1.40 and should be heading lower to test the important support at 1.3945. Failure to hold above this support could lead to a decline of 1.3835. MACD has turned bearish and Stochastic is still declining. 20EMA is about to have a bearish crossover with the 55EMA, which could signal the end of the bullish trend. We see price going lower and only a move above 1.4160 would change our bearish view.

Support 1.39301.38751.3835
Resistance 1.39851.40401.4080

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