FX Commentary – US Dollar Weakened As Economic Optimism Grows

Market Talk

  • The dollar was down on Monday morning in Asia, with investors cautiously bullish over the upcoming week of earnings and economic data to gauge whether the markets’ guarded optimism on the economic outlook is justified as coronavirus cases continued to surge in the United States.
  • The greenback ended its third week of losses on Friday as investors bought into risk-sensitive currencies on bets that the worst of the pandemic’s sweeping impact was over. U.S. corporate earnings season will start this week, providing another window to assess the scale of the damage as well as the recovery, from the pandemic.
  • China’s offshore yuan was around 7.00 and waiting for direction with the country due to release its June trade data on Tuesday and a batch of other data, including second quarter GDP, on Thursday.
  • The euro traded above 1.1300, maintaining its slow uptrend since late last month. Looming large for the common currency is a planned EU summit on July 17-18, where leaders need to seek a solution to bridge gaps on long-term budget and economic stimulus plans to combat the coronavirus pandemic.
  • Gold prices edged higher on Monday, holding above the key $1,800-per-ounce level, as worries over surging coronavirus cases around the world kept the safe-haven metal underpinned.

Chart Focus USD/CAD
Key Points
1. Sell USD/CAD recommendation
2. Sell USD/CAD at 1.3570. Stop at 1.3610 and target at 1.3490
3. As investors’ risk appetite grow and a crude oil price increase are weighing on the safe haven U.S. dollar
4. Capped by a price resistance and with momentum indicators bearish, these are sign of a price reversal

Fundamental Comments
1. Investors shifted to riskier currencies as optimism grows on economic recovery, shunning safe haven U.S. dollar
2. An increase in crude oil price is supporting the Canadian dollar

Technical Comments
1. Inability of price to move above resistance at 1.3625 has resulted in a reversal
2. MACD has turned bearish and Stochastic is turning down from the overbought zone with a bearish crossover.

Key Levels

Support 1.35551.35151.3485
Resistance 1.36001.36301.3675

Technical Overview
USD/JPY – Price reached a low of 106.52 on Friday and today we have seen price pulled back higher to 106.90.  MACD is rising and Stochastic has a bullish crossover. We think the rally can continue higher to 107.15. Inability to surpass this resistance could mean the downtrend is not over as yet. Price will need to move above 107.15 to confirm the low at 106.52 is in place.

Support 106.75106.40106.05
Resistance 107.15107.40107.70

EUR/USD -Price reached a high of 1.1370 on Thursday and declined on Friday to a low of 1.1254. Price managed to move higher to 1.1335 this morning but we think price is likely to stay within last Thursday and Friday’s range of 1.1254 to 1.1370. Stochastic is near to the overbought zone and MACD is showing sign of weakness. 20EMA support lies at 1.1310.

Support 1.13051.12551.1215
Resistance 1.13401.13701.1460

GBP/USD – Our buy order on Thursday was stop out on Friday when price reached a low of 1.2566 before bouncing higher to 1.2660 currently. The upward momentum is still strong and price is likely to break above the previous high of 1.2669 to test the Fibonacci 127% of the rally at 1.2705. Stochastic and MACD are both rising and bullish and can support price rally.

Support 1.26401.26051.2570
Resistance 1.26701.27051.2740

XAU/USD – After reaching a high of $1817.65, price has been on a decline. The decline was halted by the 20EMA and if price continues to hold above the 20EMA, we are likely to see a test of the high at $1817.65 again. MACD is still bullish with the faster line turning around and hinting of another price rally. Stochastic has a bullish crossover and could be moving higher as well.

Support 1795.701784.901773.30
Resistance 1810.301817.601825.05

USD/SGD – Price has declined to the previous 3-month low at 1.3870. If price is unable to drop below this support, we are likely to see a rally back to the 20EMA resistance at 1.3910. Stochastic is near to the oversold zone but MACD is bearish at the moment. A possible bullish Engulfing pattern on the 4-hourly chart adds to our bullish view and a test to 1.3910.

Support 1.38701.38401.3805
Resistance 1.39151.39501.3990

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