FX Commentary – 2nd Wave of Coronavirus Outbreak Boosted US Dollar

Market Talk

The Chinese Yuan dipped against the US dollar to 7.0545 after Beijing recorded dozens of new cases of the novel coronavirus in recent days, all linked to a major wholesale food market, raising fear of a second wave of a coronavirus outbreak in China.
The Australian and New Zealand dollars fell against their U.S. counterpart on Monday on the China’s second wave. Traders are also monitoring a spike in coronavirus cases in the United States, which raises concern that another outbreak could once again slow the global economy. .
The British pound declined against the greenback due to concerns trade negotiations between Britain and the European Union are not making enough progress with the end of June deadline approaching. An extension needs to be made by the end of this month or UK will leave EU without a trade deal.
Just a week after being crushed by the best U.S. jobs report in three months, the gold rally is back and alive, as fears about a second coronavirus wave in the United States and China prop up the safe haven. Gold reached its previous week’s high of $1744 on Friday.
The dollar was little changed at 107.36 yen as investors avoided big moves before a Bank of Japan policy meeting ending Tuesday. No major changes are expected, but some investors may be interested in Governor Haruhiko Kuroda’s views on growing interest in its yield curve control policy.

Chart Focus USD/CNH
Key Points

Buy USD/CNH recommendation
Buy USD/CNH at 7.0830. Stop at 7.0640 and target at 7.1315
A second wave of coronavirus outbreak in China and US is likely to weigh on the Yuan against the safe haven US dollar
Price is breaking out of a Double Bottom chart pattern with MACD confirming the reversal in trend

Fundamental Comments

A second wave of a coronavirus outbreak in Beijing is likely to weigh on the Yuan against the US dollar.
Fear of a second wave of coronavirus outbreak in U.S. and Europe is likely to send investors into save haven US dollar.

Technical Comments

Price is breaking out of a Double Bottom’s neckline, which is a hint of more price upsides ahead
MACD has given a divergence warning which confirms the upside breakout

Key Levels

Support	7.0770	7.0510	7.0260
Resistance	7.1035	7.1215	7.1330

Technical Overview

USD/JPY – Price was capped by the 20EMA on Friday at 107.55 and has made a small decline to a low of 107.02 this morning. We see price moving lower to 106.55 to test the low again if resistance at 107.55 is able to cap the rally. MACD is still bearish. Stochastic is still moving higher from the oversold zone and has yet to reverse down. 20EMA is hinting of a strong bearish trend. Above 107.60, we are likely to see a test of 108.20, which is also the mid-point of the decline from 109.84 to 106.56.

Support	106.95	106.55	105.95
Resistance	107.20	107.70	108.20

EUR/USD – Price made a new high at 1.1421 on 10 June after FOMC’s announcement. However, the high was accompanied by bearish divergence warning from MACD on the 4-hourly chart and since that high, price has now declined to 1.1211 on Friday’s night. We are expecting price to break the low at 1.1211 for a decline low to 1.1070, which is also the Double Top chart pattern target. MACD is bearish but Stochastic is near to the oversold zone. Above 1.1365 would negate our bearish view for the next few days.

Support	1.1210	1.1185	1.1150
Resistance	1.1260	1.1305	1.1360

GBP/USD – Price made a new high at 1.2812 on 10 June after FOMC’s announcement but that high was accompanied by bearish divergence warning from MACD on the 4-hourly chart. It was the second divergence warning from MACD. Since that high, price has declined to a low of 1.2463 at the time of this writing. MACD is bearish but Stochastic is into the oversold extreme. We see the trend continuing and a price decline to 1.2375. Below 1.2345 would mean a deeper correction is ahead.

Support	1.2440	1.2385	1.2320
Resistance	1.2495	1.2550	1.2615

XAU/USD – Price reached a high of $1744.60 on 11 June and has declined to a low of $1720.70. As price has tested the high of the consolidation, we are expecting price to test the support at $1707 as part of the big sideways movement. MACD has turned bearish. As such, we need to be prepared for a deeper decline if support at $1707 fails to halt the decline. Stochastic is in the oversold zone but 20EMA is strongly bearish

Support	1714.40	1698.20	1683.30
Resistance	1726.40	1740.90	1753.95

AUD/USD – Price made a new high at 0.7060 on 10 June after FOMC’s announcement but that high was accompanied by a bearish divergence warning from both MACD Stochastic on the 4-hourly chart. Since that day, price has been on a decline to a current low of 0.6777. We are expecting the decline to continue to 0.6730 which is the reversal target of the Double Top chart pattern. MACD is bearish and Stochastic is in the oversold extreme. However 20EMA is hinting of a strong bearish trend.