FX Commentary – Strong Economic Data offset Rising Coronavirus Cases

Market Talk

  • The dollar was on the defensive against more growth-sensitive currencies on Thursday, following upbeat U.S. and European economic data but renewed worries about rising coronavirus cases in the US blunted more aggressive risk taking.
  • U.S. manufacturing activity rebounded more than expected in June, with the manufacturing activity index by the Institute for Supply Management (ISM) hitting its highest in 14 months as firms and businesses resumed operations. Similar surveys from China, Germany and France all pointed to a recovery in factory activity.
  • Sterling recovered to $1.2477 after hitting a low of 1.2242 on Monday. The single currency was caught in a range against the US dollar. The Japanese yen was barely changed at 107.45 while the Australian dollar fetched $0.6910 ahead of NFP later today.
  • Gold fell back swiftly to $1758.88 on Wednesday after investors booked profits on its rally to an eight- year high $1,789  an ounce, but backers of the safe haven said they did not expect it to fall too much in the near future owing to the resurgence in COVID-19 cases.
  • ADP National Employment Report showed June private payrolls increased 2.369 million jobs but NFP due later in the day ahead of U.S. public holiday on Friday, are expected to show an increase of 3 million non-farm payrolls in June.

Chart Focus USD/JPY
Key Points
1. Buy USD/JPY recommendation
2. Buy USD/JPY at 107.40. Stop at 106.95 and target at 108.70
3. Better economic data has boosted hopes of an economic recovery and dented demand for safe haven yen
4. A bullish reversal chart pattern with bullish MACD is a sign of a possible price rally ahead.

Fundamental Comments
1. Better US, China and Eurozone data has boosted hopes of an economic recovery and dented demand for 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 to 108.80
2. MACD is bullish and is turning around, hinting of a possible price rally ahead.

Key Levels

Support 107.30106.80106.45
Resistance 107.65108.15108.50

Technical Overview
NZD/USDSince hitting a low of 0.6385 on Tuesday, price has been on an uptrend and has rallied to a high of 0.6503 this morning. We are expecting this rally to continue higher to 0.6532, which was last week’s high. There is a possibility of reaching 10 June high at 0.6582 as well. MACD is strong and bullish on the four-hourly chart. Stochastic is into the overbought zone. 20EMA is bullish with a steep gradient.

Support 0.64950.64400.6385
Resistance 0.65350.65850.6625

EUR/USD – Price declined to a low of 1.1185 overnight but the breakout failed to have a follow through. Instead, price bounced up strongly to a high of 1.1274. Since the overnight high, price has managed to stay above 1.1240 and if this support can hold, we see another attempt to test the high of 1.1290. MACD is bullish and Stochastic is near to the overbought zone but not into it as yet.

Support 1.12401.12051.1165
Resistance 1.12901.13401.1390

GBP/USD – Price reached a low of 1.2251 on Monday and following comments from BOE’s economist Haldane on Tuesday; we have seen a strong bounce to almost 1.2500. We are expecting the price rally to continue towards 1.2545 and a break of this point would target 1.2690. Stochastic is into the overbought zone but MACD is bullish and still rising, hinting of a strong bullish trend.

Support 1.24601.24001.2355
Resistance 1.25101.25451.2590

XAU/USD – We had a buy call yesterday but price reached a high of $1789, missing our profit target at 1791.50. Price went to a low of $1758.88, taking out our stop order. We lost $4.50 on this trade. Yesterday’s bearish Engulfing pattern is hinting of more downside ahead and yesterday high could be a temporary market top and a bigger correction is in store. Stochastic is also in the oversold extreme.

Support 1758.851747.351734.30
Resistance 1772.951788.951800.00

USD/CAD – After reaching a high of 1.3714 last Friday, price has been declining and we saw a low of 1.3545 overnight. The rally this morning was capped by the 20EMA at 1.3610 and we think a decline to 1.3485 can happen if price is unable to move above the 20EMA resistance point. MACD is bearish at the moment with both lines below the zero zone.

Support 1.35751.35451.3485
Resistance 1.36151.36551.3715

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