FX Commentary – Increase n Risk Appetite Depress Safe Havens

Market Talk

  • The euro held near multi-month highs on Thursday after seven straight session of gains, its highest since mid-March, on expectations the European Central Bank will expand its bond buying program later in the day to shore up the coronavirus-driven economy.
  • U.S. private payrolls shed 2.76 million jobs in May, less than the 9 million expected, suggesting layoffs were abating as businesses reopen in the U.S. As investors’ optimism in the economy recovery grew. the US dollar fell for a sixth straight day as riskier currencies are preferred over safe havens.
  • Gold’s safe-haven edge keeps crumbling as signs that the worst of the COVID-19 impact to the economy may be over following better-than-feared labour market and services data. The yellow metal fell below the key $1,700 to a low of $1,689.20.
  • The British pound was trading near its highest levels in over a month, helped by signs that Britain might be willing to compromise on sticking points in Brexit negotiations with the European Union. Britain has until July 1 to ask for an extension to the current transition period, which ends in December.
  • Bank of Canada kept its interest rates unchanged in a monetary policy meeting last night. The Canadian dollar was also helped by crude oil price which hit their highest in three months as speculation strengthened that OPEC, Russia and other major exporters will extend their current deal on output restraint for another three months, rather than starting to taper it as originally envisaged.

Chart Focus GBP/USD
Key Points

  1. Buy GBP/USD recommendation
  2. Buy GBP/USD at 1.2485. Stop at 1.2440 and target at 1.2610
  3. Compromise between UK and EU and optimism over global economic recovery is weighing on the safe haven US dollar.
  4. Price is coming into a strong support area with MACD hinting of further price upside

Fundamental Comments

  1. Compromise between UK and EU on trade deal could aid the Sterling.
  2. Optimism in the global economic recovery is sending flows into riskier currencies and weighing on safe haven US dollar

Technical Comments

  1. Price is coming into a strong support zone and there could be a another price movement higher
  2. MACD is bullish and its slow line is far away from the zero line, hinting of a strong bullish trend

Key Levels

Support 1.25201.24801.2425
Resistance 1.25701.26101.2650

Technical Overview

USDCNH – Since the peak at 7.1961 on 27 May, price has declined to a low of 7.0848 yesterday. The bearish trend does not look completed as yet. We think there should be another decline to 7.0730. Price is currently moving into the resistance zone and 55EMA resistance point at 7.1330 and we think this could cap and provoke a decline to 7.0730. Stochastic is moving up from oversold zone but MACD is bearish at the moment.

Support 7.12207.10657.0850
Resistance 7.13407.15107.1620

EUR/USD – Despite the technical warning, this pair continues to rally for a seventh consecutive day to a high of 1.1257. While the trend is bullish and strong, MACD has again given a divergence warning as price makes a new high at 1.1257. Stochastic is also in the overbought zone. There is also a Shooting Star candlestick pattern on the 4-hourly chart. If price is capped at 1.1257, it is likely to be heading lower to 1.1135.

Support 1.11851.11501.1115
Resistance 1.12201.12601.1290

AUD/USD – Price reached a high of 0.6982 on Wednesday’s morning and a correction has likely started. This 3-movement correction is likely to bring price lower to 0.6840 before the rally resumes again. Stochastic is close to the oversold zone but MACD is still bearish at the moment. 55EMA is providing support at 0.6875. A deeper correction could see price move lower to 0.6775.

Support 0.68750.68400.6805
Resistance 0.69150.69450.6985

XAU/USD – Price broke below $1726, which invalidated our 5-movement structure. Price reached a low of $1689.21 overnight and we have seen a recovery in price to $1705.75. If price is unable to move above this high, we see price moving lower to $1675 in the next few days. The correction is likely to take a longer time before the rally resumes again. MACD is bearish but Stochastic is rising from the oversold zone. Look to sell rally to $1715.

Support 1693.501681.501674.40
Resistance 1705.751716.851727.05

USD/JPY – Our order was not filled yesterday as price only declined to a low of 108.41. Price has moved higher and close to our profit target. We think price can continue to move higher as MACD is still bullish and rising. Stochastic is in the overbought zone but is not reversing direction as yet. 20EMA is also hinting of a strong bullish trend. The next resistance lies at 109.20, which is also 261.8% of the rally from 107.07 to 107.89

Support 108.85108.40107.95
Resistance 109.20109.65110.00

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