FX Commentary – Navarro’s Comment Sent Market Into A Wild Swing

Market Talk

  • The dollar shot up on Tuesday morning after White House trade adviser Peter Navarro said the trade deal with China “is over”. Navarro linked the breakdown in part to Washington’s anger over Beijing’s not sounding the alarm earlier about the coronavirus outbreak.
  • The gains were soon lost after Peter Navarro clarified his statement concerning the U.S.-China trade deal, stating that his comments had “been taken wildly out of context”. His comments resurrected fears that already tense relations between United States and China may now worsen and disrupt supply chains and capital flows.
  • U.S. President Donald Trump provided further assurance after he tweeted that the U.S.-China phase 1 trade deal was still intact, helping the CNH recovered. Riskier currencies also recovered with Aussie dollar jumping up to $0.6920 from a sudden drop to $0.6860
  • Gold prices hit 10-week highs on Monday, at $1,762.70-per ounce as fears about a second wave of Covid-19 in the United States and many other countries drove investors toward the safe haven. Monday’s run-up in gold was an extension of Friday’s rally, sparked by Goldman Sachs’ forecast that gold prices could rise toward $1,800.
  • Investors are now looking to European business activity surveys due later in the day. Economists expect the euro zone composite flash PMI to rise to 42.4 in June from 31.9 last month as European economies gradually reopen.

Chart Focus GBP/USD
Key Points
1. Sell GBP/USD recommendation
2. Sell GBP/USD at 1.2465. Stop at 1.2510 and target at 1.2340
3. Brexit talk, insufficient QE and an increase in coronavirus cases are likely to weigh down the British pound
4. Price is capped by a previous support turned resistance and its MACD is hinting of a bearish trend ahead

Fundamental Comments
1. Sterling is weighed down by Brexit trade talks and possible insufficient qualitative easing to stimulate the UK economy
2. An increase in global coronavirus cases is likely to benefit safe haven US dollar.

Technical Comments
1. Price was capped by a previous support turned resistance point 
2. MACD is bearish and its fast line is turning down above the zero line, hinting of more price downside ahead.

Key Levels

Support 1.24301.23851.2335
Resistance 1.24801.25301.2560

Technical Overview
USD/JPY – Price was trapped inside a tight range for the past 3 trading days. The range is from 106.66 to 107.12. In early morning movement, price broke above the upper range on news of Navarro’s comment to reach a high of 107.21. If price can stay above 107, we think the uptrend can continue. MACD is bullish and rising and 20EMA has turned bullish, helping the bullish scenario.

Support 107.00106.65106.25
Resistance 107.40107.75108.25

EUR/USD – Price had reached a low of 1.1167 yesterday and had a fast rebound to above 1.1200. We had warned yesterday that a low may have been formed and a movement higher could be in store. Price reached a high of 1.1280 this morning and we think it can continue higher to 1.1320 as both momentum indicators has not reached their extreme as yet. Below 1.1215 would negate our bullish view.

Support 1.12601.12201.1185
Resistance 1.12951.13201.1355

AUD/USD – Price has continued a rally starting from Monday, to a high of 0.6933 on Tuesday’s morning. There was a sharp decline from this high as a result of Navarro’s comment. Following the correction, price has climbed back but is not near to the high. We think price can test this morning high but may have trouble sustaining above a new high.

Support 0.68900.68500.6805
Resistance 0.69350.69750.7020

XAU/USD – Price broke above the upper range boundary on Friday and has continued its rally into Monday, reaching a high of $1762.70. Price is currently declining and we think the previous support at $1744 could now turn into a strong support. This is where the 20EMA lies as well. If price holds around this area, we think price can test $1764 again and maybe even $1771.

Support 1744.601733.951722.10
Resistance 1755.351764.601771.70

EUR/JPY – Price only reached a low of 119.75 overnight, missing our buy order at 119.45. Price has moved higher to 120.88 this morning. We think price can continue to move higher as Stochastic has not yet reached the overbought extreme point and MACD is still bullish at the moment. The next resistance lies at 121.40. 20EMA has also turned bullish.

Support 120.50119.95119.60
Resistance 120.90121.25121.60

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