FX Commentary – Increase In Coronavirus Cases Worry Investors

Market Talk

  • The US dollar firmed on Monday after edging higher in choppy trading on Friday  as the relentless spread of the coronavirus finally made investors question their optimism on the global economy, benefiting safe harbour bonds, gold and the U.S. dollar.
  • The dollar reacted little to data showing U.S. consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 8.2% last month, the largest increase since the government started tracking the series in 1959.
  • The British pound nursed losses and sat near the low of its recent range, just a fraction above a one-month low it hit on Friday amid fresh doubts over whether Britain can settle a post-Brexit trade pact with the European Union.
  • Gold prices rose for a third week in a row, intensifying its target for $1,800 pricing, as investors piled into safe havens amid a new global surge in coronavirus cases which could result in slower global economic recovery.
  • The Euro gained as hopes for a united EU response to the virus and a swift regional recovery propel the single currency ahead about 2.5% since the beginning of May. Investors are looking to Eurozone confidence data due at 0900 GMT and German inflation figures at 1200 GMT for the latest gauge of the region’s economic health.

Chart Focus GBP/USD
Key Points
1. Buy GBP/USD recommendation
2. Buy GBP/USD at 1.2355. Stop at 1.2320 and target at 1.2445
3. A 2.5 week decline may have found its bottom as UK recovers and eases lockdown measures while the U.S. imposed restrictions on some states due to an increase in coronavirus cases.
4. Price has reached its downtrend price target and both momentum indicators are hinting of a price low with bullish divergence warnings.

Fundamental Comments
1. A two and a half week decline may have found a bottom and price could be heading higher.
2. An increase in coronavirus cases in the U.S. has led to restriction on reopening while the UK has eased it lockdown, helping the Sterling.

Technical Comments
1. Price has reached it downtrend target at Fibonacci 127% in an A-B-C decline.
2. Both Stochastic and MACD are warning with divergence, hinting of a bottom in place.

Key Levels

Support 1.23551.23101.2280
Resistance 1.23951.24301.2480

Technical Overview
USD/JPY – Price continues with its tight trading range on Friday and looks likely to follow suit today. MACD is still neutral and flat while price stay within a boarder range. Stochastic is about to give a bullish crossover. A decline below 107.00 on Friday only managed to move down to 106.75 and we think this low will hold while the topside resistance remains at 107.62.

Support 107.00106.65106.35
Resistance 107.60108.00108.25

EUR/USD – Price declined to a low of 1.1195 on Friday, forming a Double Bottom with Thursday’s low at 1.1190. This morning price managed to move above 1.1240, which is the neckline of the Double Bottom. We are now expecting price to move higher to 1.1290 within the next 48 hours. MACD is rising although it is still bearish. Stochastic is also rising, having risen from the oversold extreme.

Support 1.12401.12051.1165
Resistance 1.12901.13201.1355

AUD/USD – The decline on Friday, managed to hold above the uptrend line and price has moved up to the neckline at 0.6895. A break of this resistance is likely to bring price higher to 0.6950. MACD is still bearish but is moving higher and is close to the zero line. Stochastic is rising from the oversold extreme. A price move below 0.6840 would negate our bullish view and call for a move to 0.6770.

Support 0.68400.68100.6775
Resistance 0.68950.69300.6975

XAU/USD – Price moved below $1749 on Friday to a low of $1747.40 but this turned out to be a false breakout. Price has bounced back up to $1774.65 and looks likely to test the previous high of $1779.05 as Stochastic is still rising and has not yet reached the overbought extreme. MACD is also bullish and rising. A decline below $1747 would negate our bullish view.

Support 1767.451756.851747.40
Resistance 1779.051787.351800.00

USD/CNH – Our buy call was filled this morning as price starts to decline as market moves out of safe havens. We would recommend keeping profit and stop orders unchanged at 7.1150 and 7.0635 respectively. Stochastic is moving lower from the overbought zone. MACD is still bullish but the fast line has moved below the zero line. Price has also fallen below the 20EMA. These are not a good signs for bulls.

Support 7.06157.04507.0260
Resistance 7.07957.08957.1030

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