FX Commentary – China’s Yuan Strengthened On CSI 300 Index’s New 5-Year High

Market Talk

  • The dollar held steady against most currencies on Monday after a long weekend holiday as investors awaited data expected to show the U.S. services sector stopped contracting, in what would give further hope to an economic recovery from the coronavirus pandemic.
  • The Institute for Supply Management’s index for Non-manufacturing activity due later on Monday is expected to rise to 50.0 in June from 45.4 in the previous month, indicating activity stopped shrinking. The greenback has been locked into narrow trading ranges recently as concerns about resurgence in U.S. coronavirus infections offset growing optimism about the economy.
  • The Aussie was near a two week high ahead of a Reserve Bank of Australia (RBA) policy meeting on Tuesday. Analysts expect rates will stay at 0.25% amid signs Australia’s economic downturn will not be as dire as first feared.
  • The offshore Yuan rose to 7.0473 per dollar on Monday morning,  drawing strength from a jump in Chinese share prices to the highest in five years as investors shrugged off concerns about diplomatic tension between the United States and China.
  • Gold was down in Asia on Monday morning despite the ever-rising number of COVID-19 supporting the safe-haven asset’s recent rally. A steady rise of new coronavirus infections in the United States has encouraged some investors but most market participants remain focused on the growing likelihood that major economies will continue to recover.

Chart Focus EUR/GBP
Key Points
1. Buy EUR/GBP recommendation
2. Buy EUR/GBP at 0.9020. Stop at 0.8980 and profit target at 0.9080.
3. Good Eurozone data is supporting the Euro while the British pound is weighed down by worries of a no trade deal Brexit
4. Price has reversed from a low with Stochastic and MACD both turning higher and hinting of more price upsides.

Fundamental Comments
1. Better than expected Eurozone data is showing a Eurozone economy recovering from COVID-19 pandemic
2. Worries of a no trade deal Brexit is weighing on the British pound

Technical Comments
1. Price made a recent low with MACD divergence warning of a possible low
2. Stochastic is turning up from the oversold extreme

Key Levels

Support 0.90050.89700.8935
Resistance 0.90500.90800.9120

Technical Overview
USD/JPY – Our order from last Thursday was filled when price dropped to a low of 107.32. Price had rallied to a high of 107.77 this morning and our view remains unchanged but would recommend bringing stop higher to 107.25 while keeping target at 108.70. MACD has turned bullish and is rising while Stochastic has been rising, since exiting from the oversold zone. 20EMA has also turned bullish.

Support 107.30106.80106.45
Resistance 107.75108.15108.50

EUR/USD – Price has been trading in a range of 1.1167 to 1.302 for the past 7 trading days. Price is currently close to the range’s high and a break is likely to trigger a move to 1.1350. However, inability to break this resistance is likely to send price back to the low of the range at 1.1167. MACD is bullish and rising. Stochastic is also rising. 20EMA has turned bullish and these factors are supporting a price break higher for 1.1350.

Support 1.12701.12201.1165
Resistance 1.13101.13501.1390

GBP/USD – Our order from Friday was filled at 1.2440 when price dropped to a low of 1.2436. Price has moved higher to 1.2500 this morning and our view remains unchanged. However we would recommend bringing stop higher to 1.2430 while keeping profit target at 1.2560. MACD is bullish and rising but Stochastic is into the overbought extreme. 20EMA is bullish and its gradient is steep.

Support 1.24901.24401.2400
Resistance 1.25301.25901.2640

XAU/USD – Gold has been trading within the range established on Thursday following the NFP announcement. The range of $1757.40 to $1779.30 is likely to stay. Price is close to the top end but Stochastic is also near to the overbought zone. MACD is flat and neutral at the moment and 20EMA is flat as well.  We would prefer to stay aside during this consolidation until there is a breakout of either boundary of the range.

Support 1769.801757.401747.35
Resistance 1779.301788.951800.00

USD/CNH – Price is approaching a previous low support at 7.0260 following a strong showing from the CSI 300 index which has hit a 5-year high. MACD is bearish and turning lower. Stochastic has a bearish crossover and is moving low. 20EMA is bearish and its gradient is steep, which is hinting of a strong bearish trend. We expect price to break its support and head lower to test the $7.00 handle.

Support 7.02607.00006.9890
Resistance 7.04507.06157.0740

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