FX Commentary – Good Eurozone PMI Lifted Euro Dollar

Market Talk

  • The euro jumped to one-week highs following sign of recovery this month in the euro zone economy’s downturn caused by the coronavirus pandemic on Tuesday. IHS Markit’s Flash Composite Purchasing Managers’ Index (PMI), recovered to 47.5 from May’s 31.9, moving closer to the 50 mark separating growth from contraction. In April it hit a record low 13.6.
  • The Australian dollar and other higher-risk currencies strengthened after U.S. President Donald Trump confirmed in a tweet that the deal with China was “fully intact”. The risk-sensitive Australian dollar climbed to $0.6952, pushing it towards the top end of the range that it has held for a couple of weeks.
  • The New Zealand dollar was down slightly on the day at $0.6477 after the country’s central bank kept interest rate on hold  as expected and left QE program unchanged but is prepared to use additional tools as necessary to keep NZ economy from sliding into a downturn as a result of the coronavirus pandemic.
  • U.S. data on Tuesday showed that U.S. business activity contracted for a fifth straight month in June, while sales of new U.S. single-family homes increased more than expected in May. Investors are weighing better-than-expected economic data against increases in new cases of the coronavirus in certain areas across the globe.
  • Gold rose to $1772.90 on Wednesday morning, the highest since November 2012, as a resurgence in coronavirus cases risks impeding the recovery of the global economy driving investors to demand for haven asset Gold.

Chart Focus EUR/USD
Key Points
1. Buy EUR/USD recommendation
2. Buy EUR/USD at 1.1300. Stop at 1.1255 and target at 1.1390
3. Strong Euro zone PMI data and confirmation of an intact U.S.-China trade deal are both weighing on the US dollar
4. Strong support with bullish MACD offers an opportunity to buying into a correction for an uptrend.

Fundamental Comments
1. Strong PMI data in the euro zone is aiding the Euro dollar
2. Trump’s confirmation of an intact U.S.-China trade deal reduced demand for safe haven US dollar

Technical Comments
1. Strong supports provided by rising 20EMA and resistance turned support offers a buying opportunity into a bullish trend
2. MACD is bullish and is still rising, hinting of more price upsides ahead

Key Levels

Support 1.12951.12601.1220
Resistance 1.13251.13551.1395

Technical Overview
USD/JPY – Price had broken above the upper boundary of 3-day consolidation on Tuesday morning but this turned out to be a false break. A quick reversal saw price moved below the lower boundary at 106.66 to decline to a low of 106.07. The trend is bearish and we are expecting 20EMA at 106.70 to cap the rally and another test to 106.07 again as MACD is bearish.

Support 106.35105.95105.55
Resistance 106.70107.00107.40

NZD/USD – Price had reached a high of 0.6532 yesterday and this morning, after the RBNZ’s meeting, price only made a high of 0.6510 and has declined below an important low at 0.6485. 20EMA has also turned bearish. MACD has also turned bearish but Stochastic is into the oversold extreme. If price is capped below the 20EMA resistance at 0.6485, we are likely to see a test of 0.6435 again.

Support 0.64550.64200.6380
Resistance 0.64850.65100.6535

GBP/USD – Our sell call was stop out yesterday after a strong UK PMI data. We lost 45 pips as a result. As long as price can stay above 1.2450, we are likely to see another test to 1.2590. Stochastic is into the overbought zone and has a bearish crossover. MACD, while bullish is still declining indicating a possible price pullback ahead. 20EMA provides the first level of indication at 1.2480

Support 1.24801.24301.2385
Resistance 1.25151.25401.2590

XAU/USD – Price broke above the previous high of $1764.60 and moved to a high of $1772.90. This high could be a short term high as MACD is showing a bearish divergence warning. Stochastic is in the overbought zone at the moment. We may see some consolidation before the rally resumes again. A fall below $1752 could mean a deeper correction.

Support 1764.601752.801744.60
Resistance 1772.901787.351800.00

USD/CNH – Price broke below the lower boundary of our range at 7.0600 yesterday and moved to a low of 7.0454 However, price had bounced up again and MACD has a bullish divergence warning, hinting of a possible low at 7.0454 without testing the previous low of 7.0240. Currently the rally has been capped by the 20EMA at 7.0660. We prefer to stay aside for the moment.

Support 7.04507.02557.000
Resistance 7.06507.07857.0975

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