FX Commentary – Sterling Gained On Ambitious Stimulus Package

Market Talk

  • The dollar nursed losses against most currencies on Thursday’s morning after edging higher on Wednesday as a rally in riskier assets such as global equities and commodities put a dent in safe-haven demand for the U.S. currency despite a rise in coronavirus cases in the U.S. casting doubt over the strength of the economic rebound.
  • The dollar had edged higher on Wednesday after a resurgence of the coronavirus in the United States. A number of Federal Reserve officials had expressed concern on Tuesday that the surge in infections could adversely impact the economy just as some stimulus programs are set to expire.
  • Traders in Asia are focused on whether the Chinese Yuan can extend gains against the greenback as investors ploughed funds to increase positions in Chinese stocks lifting the Chinese stock market index to a 5-year high and the Yuan below 7.00 against the U.S. dollar.
  • Sterling gained after the U.K. unveiled an ambitious £30 billion stimulus package to spur economic growth as the UK emerged from the coronavirus pandemic but Sterling still remains one of the weakest G7 currencies as uncertainty still remains as to whether a trade deal with the EU will be signed by the end of the year before UK leaves the Union.
  • Gold stormed past $1,800 on Wednesday as bulls seized on the precious metal’s upward momentum to drive its prices to new nine-year highs as a number of uncertainties to the economic outlook still persist and as the dollar slides.

Chart Focus GBP/USD
Key Points
1. Buy GBP/USD recommendation
2. Buy GBP/USD at 1.2610. Stop at 1.2575 and target at 1.2690
3. Good global economic data and big stimulus package have both boosted Sterling and dented safe haven US dollar
4. A strong support zone couple with bullish MACD is a sign of more price upsides ahead

Fundamental Comments
1. Good global economic data has increased investors’ risk appetite and dented safe haven US dollar demand
2. An ambitious £30 billion stimulus package to spur economic growth in the UK has boosted Sterling

Technical Comments
1. A strong supported zone provided by a previous resistance turned support and the 20EMA are both likely to spur price higher
2. MACD is bullish and rising, which is a hint of more price upsides ahead.

Key Levels

Support 1.26051.25701.2530
Resistance 1.26501.26901.2740

Technical Overview
USD/JPY – Price has been in a 54 pips range on Monday and Tuesday to stay within a range from 107.24 to 107.78. Last night price broke below 107.24 but only managed to move to a low of 107.18. At this moment, it is not clear if this breakout will work. MACD is still bearish and Stochastic is near to the oversold zone. If price is unable to move above 107.40, it is likely to move below 107.18 to 106.80.

Support 107.15106.80106.45
Resistance 107.40107.75108.15

EUR/USD – Price has been trading in a range of 1.1167 to 1.1350 for the past nine trading days and price broke above the range high of 1.1350 this morning to reach a high of 1.1370. However this high was accompanied with a divergence warning from the MACD indicator. This could be a warning of a price high. Stochastic is also in the overbought zone. If price is unable to move above 1.1370, we are likely to see a decline to 1.1315 but a move above 1.1370 could lead price to 1.1420.

Support 1.13451.13101.1260
Resistance 1.13701.14201.1460

USD/CNH – Price had rallied to a high of 7.0293 yesterday and has pulled back to 7.0170. Price was unable to move above 7.0293 and we saw another test of the low at 6.9950. Price declined to a low of 6.9805 and this may have completed the downtrend. If price is able to hold above this low, we are likely to see a price movement to test 7.00.  MACD has warned with divergence and Stochastic is moving up from the oversold zone. A move below 6.9805 would mean the downtrend is not completed and there will be more down sides.

Support 6.98056.96006.9385
Resistance 6.99507.01057.0295

XAU/USD – Price broke above Tuesday’s high of $1786.95 on Wednesday which started a rally to a high of $1817.65 last night. MACD is bullish and is moving higher. Stochastic is into the overbought zone and has a bearish crossover but is holding well inside the overbought zone. If price can hold above $1800, we are likely to see another test to $1825.

Support 1805.651791.201784.70
Resistance 1817.601825.051851.65

USD/CAD – Our view on this pair was wrong yesterday. We lost 45 pips as a result. Price failed to break above the cloud and decline below a uptrend line. MACD has turned bearish and Stochastic is also declining. 20EMA has turned bearish on the 4-hourly chart. The next support lies at 1.3480 and a break is likely to lead to a decline to 1.3395.

Support 1.34801.34351.3390
Resistance 1.35201.35701.3625

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