FX Commentary – Fresh Worries Dragged Sterling To 1.2252

Market Talk

  • Safe-haven currencies were on the back foot on Tuesday as hopes of an economic turnaround boosted stock prices and riskier currencies while sterling was under pressure after British Prime Minister Boris Johnson promised a “Rooseveltian” boost to public spending.
  • Sterling fell against the US dollar to fresh one-month lows of 1.2252 on Monday, amid concerns about the U.K.’s post-Brexit spending plans and worries that the latest round of U.K-EU trade talks are unlikely to yield progress.
  • Spurring fresh optimism on the U.S. economy was pending home sales data, which surged 44.3%, compared to economists’ forecast for 18.9% rise, showing that housing market activity had quickly recovered in May from a plunge triggered by the coronavirus pandemic.
  • The United States began eliminating Hong Kong’s special status under U.S. law on Monday, halting defence exports and restricting the territory’s access to high technology products as China prepares controversial national security legislation for Hong Kong.
  • Gold stayed within striking distance of the $1,800 per ounce target on Monday keeping the yellow metal in positive territory despite an unexpected ramp up in risk by investors shrugging off some of their fears over the Covid-19.

Chart Focus USD/JPY
Key Points
1. Buy USD/JPY recommendation
2. Buy USD/JPY at 107.50. Stop at 107.05 and target at 108.80
3. Better US data, interest rate differential and hopes of an economic turnaround dented safe haven yen
4. A bullish reversal chart pattern with accompanying bullish MACD is hinting of further price rally ahead.

Fundamental Comments
1. Better US data and hopes of an economic turnaround boosted risk appetite and dented safe haven yen.
2. Interest rate differential is in the US dollar favour

Technical Comments
1. An Inverse Head and Shoulder chart pattern is pointing to a price rally.
2. MACD is bullish and supporting the chart pattern direction.

Key Levels

Support 107.45107.00106.70
Resistance 107.90107.25108.60

Technical Overview
EUR/JPY – Price reached a high of 121.35 last night but this high was accompanied with divergence from the MACD indicator. Stochastic is turning down from the overbought zone after a bearish crossover. Price is currently supported by the 20EMA at 120.70 but a break below the 20EMA could see a decline to 119.80. There is also a possibility of 119.30.

Support 120.60120.05119.75
Resistance 121.00121.35121.80

EUR/USD -Price declined to a low of 1.1195 on Friday, forming a Double Bottom chart pattern with Thursday’s low at 1.1190. Price managed to move above 1.1240 on Monday, which is the neckline of the Double Bottom and moved higher to 1.1287, which is close to the chart pattern’s target. This morning price moved below 1.1240 and we are now expecting price to decline below 1.1190 to test the previous low at 1.1167.

Support 1.12051.11651.1140
Resistance 1.12401.12901.1320

GBP/USD – Our buy call yesterday was wrong and got stop out with a loss of 35 pips after UK’s PM promised a “Rooseveltian” boost to public spending. The resistance zone at 1.2315-1.2335 is likely to halt price rally for another test to the downside. MACD is bearish and Stochastic is in the oversold extreme. Both momentum indicators have shown divergence warning of a low as well.

Support 1.22801.22451.2190
Resistance 1.23151.23551.2390

XAU/USD – Price has been moving in a sideways consolidation for the past 48 hour and we are expecting this sideways consolidation to persist until there is a break above $1775 or below $1765. MACD is bullish but flat and near to the zero line. Stochastic is into the overbought zone but 20EMA is bullish and supporting price for the past two days

Support 1765.201756.851747.40
Resistance 1779.051787.351800.00

USD/CNH – Our buy call was filled on Monday morning at 7.0745. We had recommended keeping profit and stop orders unchanged at 7.1150 and 7.0635 respectively yesterday. Unfortunately price reached a low of 7.0625 this morning. Stochastic is near to the oversold zone but MACD could be turning bearish soon. 20EMA has also turning bearish.

Support 7.06157.04507.0260
Resistance 7.07957.08957.1030

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