FX Commentary – Coronavirus Fear Wins Against Economic Recovery

Market Talk

  • The dollar gave up some of its overnight gains on Friday but was headed for its best week in a month as resurgence in coronavirus cases knocked confidence in a rapid economic recovery and drove investors to the safety of the world’s reserve currency.
  • Investors will continue to monitor the rising number of COVID-19 cases in Beijing and the U.S., with the number of cases stemming from an outbreak at Xinfadi market almost at 200. Simmering U.S.-China tensions will be another focal point in the aftermath of U.S. President Donald Trump warning on Thursday that cutting ties with China is on the cards.
  • The Aussie dollar gained in Asian on Friday morning to 0.6860, after the Bureau of Statistics said earlier in the day that Australian May’s retail turnover has surged 16.3% month-on-month. The Kiwi slipped to its lowest since Monday to 0.6405.
  • The British pound slipped to a two week low at 1.2408. While the pound was boosted by the Bank of England’s quantitative easing program announced on Thursday, investors were concerned that the program could be insufficient to support confidence into 2021.
  • Gold was up on Friday morning in Asia, amid a rising number of coronavirus cases in China as well as rising U.S.-China tensions. Geopolitical tensions on the Korean peninsula and in the Himalayas have also weighed helping Gold.

Chart Focus GBP/USD
Key Points
1. Sell GBP/USD recommendation
2. Sell GBP/USD at 1.2495. Stop at 1.2535 and target at 1.2360
3. Geopolitical tensions and insufficient QE by the BOE are both weighing on the British pound
4. Strong resistances coupled with a bearish MACD are pointing to more price declines ahead

Fundamental Comments
1. Investors are concerned BOE’s QE may be insufficient to support the British economy and is weighing on the pound
2. Geopolitical tensions and brewing Sino-US tensions are driving investors into safe haven US dollar

Technical Comments
1. Price is facing a strong resistance provided by a support turned resistance point and a declining 20EMA
2. MACD is bearish and is hinting of more price declines ahead.

Key Levels

Support 1.23951.23551.2290
Resistance 1.24451.24951.2550

Technical Overview

USD/JPY – Price reached a high of 107.63, which was just below the 55EMA on 16 June and has been declining since that high. Price reached a low of 106.66 overnight and we are expecting price to continue lower to the next support level at 106.55, which was the recent low on 11 June. MACD is bearish and declining and 20EMA is bearish as well, which supports our view.

Support 106.55106.20105.95
Resistance 106.95107.25107.60

USD/CNH – For the past 4 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 7.06857.04507.0255
Resistance 7.08507.09757.1085

USD/CAD – After reaching a high of 1.3680, the price decline that followed was halted at the Fibonacci 50% of the rally from 1.3314 to the high at 1.3685. As long as price holds above the Fibonacci 50-62% correction point, we favour a rally to 1.3785 over the next few days. Stochastic is rising but is approaching the overbought zone. MACD is still bullish and 20EMA is pointing up as well.

Support 1.35651.35051.3450
Resistance 1.36151.36651.3710

XAU/USD – Yesterday, we saw a price rally to $1736.70 that was followed by a decline to $1717.40. This morning, price is back to $1730. Our view remains unchanged. We view this as a big consolidation with boundaries at $1700 and $1744. Stochastic and MACD are both rising and we hope to see a break of the upper boundary. If price is capped, we are likely to see a test of the lower boundary.

Support 1727.401717.301704.20
Resistance 1736.701744.601753.85

EUR/USD – Price rose to a high of 1.1260 overnight, filling our sell order at 1.1255. Price has since declined to 1.1185 but has recovered higher to 1.1215 this morning in Asia. Our view remains the same. We are looking at price going lower to 1.1145. We would recommend bringing stop lower to 1.1260 and keeping profit target unchanged at 1.1145. MACD is still bearish and hinting of more price declines.

Support 1.11851.11401.1100
Resistance 1.12251.12651.1295

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