FX Commentary – Fed’s Gloomy Outlook Buoyed Safe Havens

Market Talk

  • The dollar gained against riskier currencies as the U.S. Federal Reserve made no policy changes, as expected, and pledged to continue its asset purchases aimed at stabilizing a U.S. economy that has been ravaged by the novel coronavirus but its dour economic outlook spooked investors.
  • The outlook arrested the greenback’s initial slide after the Fed’s policy stance, projecting rates near zero for years and was even more accommodative than market expectation. Fed policymakers projected the U.S. economy to shrink 6.5% this year and the unemployment rate to be 9.3% at year’s end.
  • That was a gloomier view than many in the market have gravitated towards in recent days and sent investors out of stocks, away from riskier currencies and into bonds, gold and the US dollar.
  • The safe-haven yen hit a one-month high on Thursday, 106.90, its highest since mid-May. The Australian dollar retreated from an overnight 11-month high and fell as much as half a percent to $0.6966. The New Zealand dollar gave up a four-and-a-half month high and fell 0.3% to $0.6516.
  • Gold rose after the U.S. Federal Reserve held onto its pledge to ease the economic pain from the coronavirus pandemic. Goldman Sachs’ $1,800 bet and fears of another Covid-19 spike are coming together, boosting bullion’s safe-haven appeal.
  • There will be no Daily FX Commentary for tomorrow. Report will resume on Monday 15 June 2020.

Chart Focus AUD/JPY
Key Points

  1. Sell AUD/JPY recommendation
  2. Sell AUD/JPY at 74.55. Stop at 75.10 and target at 73.10
  3. Fed’s dour economic assessment dented investors’ sentiment and prompted a move into safe havens
  4. An A-B-C correction and bearish MACD hint, are signs of more price declines ahead.

Fundamental Comments

  1. Fed’s gloomy economic outlook has sent investors out of stocks and into safe haven yen.
  2. Aussie looks exhausted after a rally to a 11-month high and fell as investors moved away from riskier currencies

Technical Comments

  1. Price could be forming an A-B-C correction after the rally to 76.77 high.
  2. MACD is bearish and is pointing lower, hinting of more price declines ahead.

Key Levels

Support 73.8573.3072.90
Resistance 74.4074.9575.60

Technical Overview

USD/JPY – Price broke the previous low of 107.07 on 29 May 2020 and declined to a low of 106.88 this morning. We think the decline could continue lower to 106.70, which was formed on 13 May 2020. The downside is limited as Stochastic and MACD are both turning up from their extreme level. 20EMA is still bearish and its slope is steep, hinting of a strong bearish trend. We would prefer to wait for a corrective rally to get in around 107.50.

Support 106.85106.40105.95
Resistance 107.20107.70108.10

EUR/USD – Price made a new high at 1.1421 last night after FOMC announcement. However, the high was accompanied by bearish divergence warning from MACD on the 4-hourly chart. A price move below 1.1315 price support level is likely to accelerate the decline. Stochastic has a bearish crossover and is moving lower, but 20EMA is now supporting price. Watch the reaction at 1.1315 price support level.

Support 1.13151.12751.1225
Resistance 1.13601.14201.1460

GBP/USD – Price made a new high at 1.2812 last night but that high was accompanied by bearish divergence warning from MACD on the 4-hourly chart. It was the second divergence warning from MACD and price has broken below the 20EMA and could be moving lower to 1.2615. Stochastic is also moving lower after a bearish crossover. A break of 1.2615 could mean a decline to Fibonacci 50% of the rally at 1.2450.

Support 1.26601.26151.2575
Resistance 1.27051.27601.2795

XAU/USD – Price broke above $1723 last night and after the FOMC announcement has moved up to $1739.20. We are expecting price to move higher to test the previous high resistance at $1744. A break of this resistance will lead to a higher test of $1764 and Ichimoku target of $1774, which we projected in yesterday’s commentary. A break of $1707 would negate our bullish view

Support 1721.401707.451659.95
Resistance 1731.701744.601753.85

AUD/USD – Our call yesterday was stopped out after the FOMC triggered a big spike in price. We lost 45 pips as a result. Price reached a high at 0.7060 but has declined to 0.6920 after that spike. We are expecting price to continue lower to 0.6860. MACD has been warning of a price top over the past 3 days and Stochastic has a bearish crossover and is moving lower, hinting of more price declines ahead

Support 0.68950.68550.6810
Resistance 0.69400.69750.7015

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