FX Commentary – US Dollar Gains On Coronavirus Fear

Market Talk

  • The dollar held its earlier gains on Thursday morning in Asia, amid growing concern over the spike in COVID-19 cases in China and the U.S. Beijing reported 21 new cases linked to an outbreak at the Xinfadi market on Wednesday, while Texas reported an 11% jump in hospitalization on the same day.
  • Fears of a second coronavirus wave have trended in recent days, with new Covid-19 cases in Beijing hitting 106 on Tuesday as 29 communities in the sprawling Chinese capital go back on lockdown. While the number of cases is still small, it is a worrying resurgence for a city that enjoyed almost two months without a single new infection.
  • The euro fell against the dollar on Wednesday, and analysts are warning that there is little chance that the single currency can mount an imminent comeback after snapping its three-week winning streak last week.
  • Sterling trading in a narrow range ahead of the Bank of England’s policy meeting later in the day. The central bank is widely expected to give its quantitative easing program a boost of at least GBP 100 billion amid an economy hard hit by COVID-19 and tough negotiations for a free trade agreement European Union.
  • Gold slide lower to $1712 overnight but quotes for the yellow metal were rock-steady at above $1,720 on Thursday morning as financial markets grasped with the impact of new coronavirus cases and whether there would be a second wave of the pandemic.

Chart Focus EUR/USD
Key Points

  1. Sell EUR/USD recommendation
  2. Sell EUR/USD at 1.1255. Stop at 1.1295 and target at 1.1145
  3. Fear of a second wave of pandemic and the single currency snapping its three-week winning streak are signs that the uptrend is over
  4. A weak rebound off the Fibonacci 38% correction point and a bearish MACD are both hinting of further price declines ahead.

Fundamental Comments

  1. Fear of a second wave of coronavirus is sending investors into safe haven US dollar
  2. The common currency snapped its three-week winning streak, hinting the uptrend is over.

Technical Comments

  1. The rebound off the Fibonacci 38% correction point is weak and is capped by the 20EMA
  2. MACD is bearish and is hinting of more downside ahead

Key Levels

Support 1.12051.11801.1140
Resistance 1.12601.12951.1320

Technical Overview

AUD/JPY – Our call was wrong on this pair and we lost 40 pips yesterday. Price has continued to move lower, to a low of 72.97 this morning. Stochastic is still declining and MACD is still bearish. There is a possibility that price may continue lower to 72.60. A break of this support could lead price lower to 71.50. 20EMA is bearish and is still moving higher.

Support 73.0072.6072.05
Resistance 73.5573.9574.35

USD/CNH – For the past 3 days, since the beginning of this week, price has been caught in a range from 7.0600 to 7.0975. We expect a price decline as MACD is turning bearish on the 4-hourly chart. Stochastic is also declining after a bearish crossover was seen.20EMA and 55EMA are both flat at the moment as price consolidates within the range. Watch the lower range boundary for clue to the next trend direction

Support 7.05957.04507.0255
Resistance 7.07657.09757.1085

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. Price moved up from this low to reach a high of 1.2686 but has declined to 1.2510. The bounce of this low has not been strong. It could be due to the BOE meeting later tonight or a weakness in the rally. We prefer to wait for BOE to pass before jumping into this pair.

Support 1.25101.24501.2405
Resistance 1.25601.25951.2640

XAU/USD – Yesterday, we saw a price decline below the previous day’s low of $1716.20 to a low of $1712.70. This morning, price is back to $1726, which is similar to Tuesday price action. Our view remains unchanged. We view this as a big consolidation with boundaries at $1700 and $1744. Unless price moves outside of this range, we expect price to move off the boundaries to stay within the range prescribed.

Support 1722.301712.701704.20
Resistance 1732.551744.601753.85

USD/JPY – Price reached a high of 107.63, which was just below the 55EMA on Tuesday and has been declining since that high. This morning price reached a low of 106.70. We expect price to continue lower to the next support level at 106.55, which was the recent low on 11 June. MACD is losing momentum and Stochastic is near to the oversold extreme and we think this support may halt the price decline.

Support 106.55106.20105.95
Resistance 106.95107.25107.60

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