FX Commentary – Increase In Risk Appetite Boosted Riskier Currencies.

Market Talk

  • The dollar was down on Tuesday morning in Asia, after the U.S. Federal Reserve announced it would begin broad buying of corporate debt in a bid to secure companies’ access to cash and ensure credit market liquidity amid the COVID-19 pandemic, boosting investor sentiment and appetite for riskier currencies.
  • Concerns about a second wave of coronavirus infections had weighed on the mood in the previous trading session after infections surge in Latin America and the United States. China has to grapple with fresh outbreaks, all linked to a wholesale food market in Beijing.
  • The Reserve Bank of Australia monetary policy minutes from its June meeting released this morning, reiterated that the national economic downturn may not be as bad as first feared.  The Aussie dollar gained from the increased risk appetite as well as comforting message from the central bank.
  • The pound jumped from session lows against the dollar on Monday as the U.K and European Union agreed to intensify post-Brexit talks. Prime Minister Boris Johnson stoked hopes that an outline of a deal could be reached by the end of next month. 
  • Gold was up on Tuesday morning in Asia, reversing some of its losses from the previous session after the U.S. Federal Reserve’s move to buy individual corporate bonds on the secondary market weakened the US dollar. The yellow metal had dropped to $1704.30 before recovering to $1732.40 in Asia.

Chart Focus USD/JPY
Key Points
1. Sell USD/JPY recommendation
2. Sell USD/JPY at 107.80. Stop at 108.25 and target at 106.60
3. An increase in risk appetite and interest rate differential are both weighing on the safe haven yen
4. Pullback to Fibonacci 38% correction point with MACD and Stochastic turning down, offers an opportunity to get into the downtrend.

Fundamental Comments
1. Corporate bond buying by the Fed boosted investor risk appetite for riskier currencies and away from safe haven yen.
2. Interest rate differential is in the US dollar favour.

Technical Comments
1. Pullback in price towards the Fibonacci 38% correction points offers an opportunity to get into the downtrend
2. MACD is bearish and both MACD and Stochastic look like turning down, hinting of further price declines.

Key Levels

Support 107.25106.95106.50
Resistance 107.55107.90108.25

Technical Overview

USD/CAD – Price may have hit a bottom at 1.3313 and the recovery to 1.3685 could be the first of a series of rally. We think a pullback of the rally to Fibonacci 50% correction point at 1.3500 could be a good location to get into the rally for 1.3775. MACD is still bullish and its fast line could be turning up from the zero line hinting of more price upsides. However, Stochastic is still declining on the 4-hourly chart. 20EMA is neutral and flat at the moment

Support 1.34951.34401.3385
Resistance 1.35501.36201.3685

EUR/USD – We got this wrong yesterday. Price did not break below 1.1213 but rose to a high of 1.1337 this morning. We think the rally can continue towards 1.1360. Above this gap resistance, the next resistance lies at 1.1420 but below this gap resistance, there is a chance that price will try the low of 1.1213 again. Stochastic is rising but MACD is still bearish at the moment. 20EMA is slightly bullish. We would prefer to watch the gap at 1.1360 for clue to the next direction.

Support 1.12951.12601.1210
Resistance 1.13601.14201.1460

GBP/USD – Price was supported by the Fibonacci 50% point at 1.2445 of the rally from 1.2072 to 1.2812. This morning, price reached a high of 1.2686 and we are expecting this rally to continue higher to 1.2750. MACD is still bearish at the moment and the fast line could turn lower. However, Stochastic is still rising and hinting of further price gains ahead and 20EMA has turned up and is bullish.

Support 1.26251.25651.2495
Resistance 1.26951.27601.2810

XAU/USD – Price reached a high of $1744.60 on 11 June and has declined to a low of $1704.30 last night. The low was lower than our range boundary but within a bigger range boundary. We are expecting price to move within the range from $1700 to $1744 as part of the big sideways movement. MACD is still bullish and Stochastic is rising and these are hints that price could be moving to the upper range boundary at $1733.

Support 1721.401713.801704.20
Resistance 1732.551744.601753.85

USD/CNH – Yesterday our call on this pair was wrong. We lost 190 pips in Yuan term. Price has declined lower to 7.0595 this morning as a result of an increase in risk appetite and a weaker US dollar. We think the downside is limited. MACD is bearish but there is a possible divergence forming. Stochastic is rising from the oversold extreme and this could hint of more price upsides. A move above 7.0760 would confirm the reversal. If below 7.0760, the decline may continue to 7.0510.

Support 7.06107.05107.0380
Resistance 7.07207.08357.1035

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