FX Commentary – Fears of Second Wave Buoyed Safe Havens

Market Talk

  • A sharp uptick in Covid-19 cases in the U.S. and abroad have put risk assets on the back foot, with many fearing a second wave of infections could trigger fresh lockdown measures to contain the outbreak sending the US dollar sharply higher in late Wednesday trading.
  • Souring the mood was news that Washington is considering changing tariff rates for various European products as part of the trading partners’ aircraft dispute and Navarro saying Trump has directed US Trade Representative to monitor whether China is buying US lobsters under phase 1 trade deal or he may impose reciprocal tariffs
  • Canadian dollar dropped to C$1.3644 to the dollar, not helped by Fitch’s downgrade of Canada’s sovereign rating. The rating firm cut Canada’s rating to “AA+” from “AAA,” citing deterioration of the country’s public finances in 2020 because of the COVID-19 pandemic.
  • The IMF slashed its 2020 global output forecasts further as it sees deeper and wider damage from the pandemic than first thought. It now expects global output to shrink by 4.9%, compared with a 3.0% contraction predicted in April, with U.S. output now forecast to shrink 8.0%, more than 2 percentage points worse than the April forecast.
  • Gold paused in its advance toward the $1,800-an-ounce target on Wednesday as the dollar’s unexpected rally weighed on the safe-haven, despite a risk-off mood across markets reacting to new Covid-19 fears and a grim world economic outlook from the IMF.

Chart Focus USD/CAD
Key Points
1. Buy USD/CAD recommendation
2. Buy USD/CAD at 1.3585. Stop at 1.3540 and target at 1.3730
3. A sharp increase in coronavirus cases and a downgrade in Canadian sovereign rating are both weighing on the Canadian dollar
4. Price has reversed from the Fibonacci 50% correction point with momentum indicators hinting of higher prices ahead.

Fundamental Comments
1. Sharp increase in coronavirus cases is driving investors into safe haven US dollar.
2. A downgrade in Canadian sovereign rating is weighing on the Canadian dollar.

Technical Comments
1. Price has stayed supported at the Fibonacci 50% correction point and has rallied higher, hinting of an end of the correction
2. MACD has turning bullish and is rising. Stochastic is also moving higher.

Key Levels

Support 1.36151.35851.3540
Resistance 1.35601.36851.3735

Technical Overview
USD/JPY – Price rebounded from Tuesday’s low of 106.07 to a high of 107.25 this morning and we think this rally can continue higher to 107.60 as Stochastic has not yet reached its overbought extreme and MACD is still bullish and rising. The 20EMA is also bullish and pointing higher with a steep gradient. A decline below 106.60 would negate our bullish view.

Support 107.00106.65106.35
Resistance 107.60108.00108.25

EUR/USD – Our buy order was stop out yesterday. We lost 45 pips as a result. Price has dropped to 1.1245 but we are not sure if price can continue to move lower. MACD is still bullish and Stochastic is near to the oversold zone. Both momentum indicators are indicating limited downside. We prefer to remain on the side line for more clues and wait for better trading idea.

Support 1.12201.11701.1135
Resistance 1.12601.12951.1325

GBP/USD – Price reversed from 1.2542 and has been declining to a low of 1.2403 this morning. We are expecting the decline to continue lower to 1.2330. Stochastic is still in decline and is not near to the oversold extreme as yet. MACD is mixed and neutral near to the zero line but 20EMA is strongly bearish with a steep gradient.  A move above 1.2460 would negate our bearish view.

Support 1.23851.23301.2280
Resistance 1.24301.24801.2510

XAU/USD – Price rose to a high of $1779 yesterday but had a decline to $1749 this morning. The low was also at the Fibonacci 38% correction point of the rally from $1704 to $1779. We think the correction is completed and another rally to test $1779 is likely. A break above this point is likely to target $1800. A move below $1749 would call for a deeper correction to $1732.

Support 1760.101749.201740.60
Resistance 1772.801787.351800.00

EUR/JPY – Price has been sitting on the 20EMA and MACD is bullish but flat around the zero line. However, there a turn in MACD is likely soon. Stochastic is declining but could also turn and a bullish crossover is possible. As a result we think price could rally later from 120.30 to 121.30. Support lies at 120.10.

Support 120.30119.951.1960
Resistance 120.75121.25121.60

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