FX Commentary – Strong Retail Sales Offset Rising Coronavirus Cases

Market Talk

  • The dollar was up on Wednesday morning in Asia, boosted by fears over rising numbers of COVID-19 case with new coronavirus infections hitting record highs in six U.S. states, including populous Texas and Florida, on Tuesday. Geopolitical tensions in North Korean and clashes between Chinese and Indian troops also weighed in as investors turned to the safe-haven asset.
  • U.S. retail sales jumped far more than expected in May. The surge in retail sales last month recouped 63% of March and April’s decreases, raising hopes of a quick recovery in consumption, but Fed chairman Powell had a word of caution in his testimony to Congress, saying a full U.S. economic recovery will not occur until the American people are sure that the novel coronavirus epidemic has been brought under control.
  • In China, the government is dealing with a surging second wave of COVID-19 cases stemming from a weekend outbreak at a wholesale market. The government closed schools in the city and upped its emergency level to level two on Wednesday.
  • Gold was mixed on Tuesday, with the yellow metal stemmed by positive U.S. retail sales data and falling to $1716. Mounting COVID-19 cases and geopolitical fears sent investors back into gold as hopes of a quick recovery from the economic impact of COVID-19 decreased risk appetite.
  • Bank of Japan kept interest rate unchanged after its monetary meeting yesterday but increased the size of its direct lending program for corporate to the equivalent of $1 trillion, from an originally announced $700 billion.

Chart Focus AUD/JPY
Key Points

  1. Buy AUD/JPY recommendation
  2. Buy AUD/JPY at 73.65. Stop at 73.25 and target at 75.70
  3. Strong US Retail Sales and positive interest carry is aiding the riskier Aussie dollar against the safe haven yen.
  4. Price pullback with bullish momentum is a hint of more price upsides ahead.

Fundamental Comments

  1. Strong US Retail Sales is driving investors into riskier currencies and is aiding the Aussie dollar
  2. Interest rate differential is in the Aussie dollar favour.

Technical Comments

  1. Fibonacci 62% correction point has managed to halt the decline, hinting that the decline could be a correction
  2. MACD lines are turning up again and a bullish crossover could confirm the bullish momentum trend.

Key Levels

Support 73.4573.0072.60
Resistance 73.9574.4074.70

Technical Overview

USD/CAD – Price has been supported twice overnight at 1.3510 but is testing this support again today. A break of this support is likely to send price lower to 1.3420. However if price can stay above this support, it is likely to test the topside at 1.3632 again. MACD is bearish but not strong as it is near to the zero line. Stochastic is still declining and not near to the oversold extreme at the moment. Watch the support at 1.3510 for clue

Support 1.35101.34501.3410
Resistance 1.35601.35951.3620

EUR/USD – Yesterday, price continued the rally to a high of 1.1352. Price was unable to move above 1.1360 and we saw a decline from this high to a low of 1.1227. We have seen a rally to 1.1270 this morning but we are likely to see a sideways market within yesterday’s range of 1.1227 to 1.1350 for today. MACD is still hinting of a bearish trend but Stochastic is still rising, hinting of more price upsides at the moment.

Support 1.12601.12101.1185
Resistance 1.12951.13201.1355

GBP/USD – Price was supported by the Fibonacci 50% point at 1.2445 of the rally from 1.2072 to 1.2812 and has advanced to a high of 1.2686. We had expected price to continue higher yesterday but instead, price fell to a low of 1.2540. MACD is still bearish but Stochastic is in the oversold extreme, hinting of limited downside. If price can move above 1.2600, we can expect it to continue higher to 1.27. Below 1.26, we see 1.2450.

Support 1.25401.24951.2445
Resistance 1.25901.26401.2695

XAU/USD – Price moved to the upper range boundary at $1733 last night and fell to a low of $1716.20 but has recovered to $1728 this morning. MACD is flat and near to the zero line, hinting of a sideways market. Stochastic is near to the overbought zone. 20EMA is flat and is also hinting of a sideways market. We continue to see price moving in a sideways consolidation within the big range of $1700 to $1744.

Support 1722.301713.801704.20
Resistance 1732.551744.601753.85

USD/JPY – Our sell call was not filled yesterday as price only reached a high of 107.63, which was just below the 55EMA. Price has been moving in a sideways manner after the rally and MACD has become flat and is staying near to the zero line. This is a hint of a sideways market. Stochastic is still declining. We think price is likely to stay within the range of 107.60 to 106.80. Stay aside for today

Support 107.20106.95106.50
Resistance 107.60107.90108.25

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