FX Commentary – U.S. -China Row Could Affect Market And Demand For Safe Havens

Market Talk

The dollar was caught in a narrow range on Tuesday after gaining against most currencies on Monday as renewed concerns about diplomatic tensions between the U.S. and China and rising coronavirus cases drove investors into the safe-haven dollar and dented risk appetite.

The U.S. and China are waging diplomatic battles on several fronts that have the potential to unsettle financial markets. Markets now face an additional threat from tit-for-tat retaliation between Washington and Beijing over access to U.S. financial markets, civil liberties in Hong Kong, and territorial claims in the South China Sea.

China’s exports and imports rose 4.3% and 6.2% respectively in Yuan terms in June, even as the pandemic continued to ravage the global economy. Economists had forecast that exports would increase by 3.5% while imports would shrink by 4.7%.

The euro held onto gains, resting below a one-month high at 1.1374 reached on Monday against the greenback as investors await data on German’s investor sentiment to help gauge the pace of Europe’s recovery from the coronavirus pandemic.

Gold prices stayed above $1,800 per ounce for a third straight session on Monday due to a new wave of coronavirus cases across the world and as United States and China kept up their diplomatic battles, keeping up bid for safe haven yellow metal.

Chart Focus GBP/USD
Key Points
1. Sell GBP/USD recommendation
2. Sell GBP/USD at 1.2560. Stop at 2605 and target at 1.2465
3. An increase in coronavirus cases globally and renewed tensions between U.S. and China are driving up demand for safe haven U.S. dollar
4. Breakout of a chart pattern coupled with declining momentum are both calling for a price decline to 1.2465.

Fundamental Comments
1. An increase in coronavirus cases in the world is reducing risk appetite and demand for riskier currency.
2. Renewed concerns about diplomatic tensions between the U.S. and China is driving up demand for safe haven U.S. dollar

Technical Comments
1. Breakout of a Double Top chart pattern calls for a decline to 1.2465
2. MACD divergence warning of a possible price high and declining momentum calls for more price declines.

Key Levels

Support	1.2525	1.2485	1.2435
Resistance	1.2565	1.2605	1.2665

Technical Overview
USD/JPY –Price reached a low of 106.52 on Friday and we have seen price rallied to 107.36 this morning. We think this rally can continue higher to 107.50 to end a 5-wave movement. MACD is bullish and the fast line has turned up from the zero line indicating a possible end of the correction. Stochastic is about to see a bullish crossover. 20EMA is supporting price for a push to test 107.50.

Support	107.10	106.75	106.40
Resistance	107.40	107.75	108.15

EUR/USD -Price reached a high of 1.1374 overnight and has declined back to 1.1340. 20EMA on the hourly chart is around this point and is supporting price at the moment. If price is able to hold above the 20EMA, it is likely to test the high of 1.1374 again. A break will lead to a higher test of 1.1420 while failure is likely to send price back to 1.1290.

Support	1.1335	1.1300	1.1255
Resistance	1.1370	1.1420	1.1460

NZD/USD – Price has reached a high of 0.6590 twice and could have formed a Double Top chart pattern. Going forward, we are looking at a price correction back to 0.6480. MACD could be turning bearish and there could be a bigger correction to a 0.6385 as well. However, Stochastic is near to the oversold extreme. We think price is likely to be supported at 0.6480.

Support	0.6510	0.6470	0.6440
Resistance	0.6545	0.6575	0.6600

XAU/USD – Price has been in a range from $1791 to $1817 for the past 4 trading days. Price is currently sitting on near a support at $1795. A break of this support is likely to lead to a test of the range support at $1791. MACD is declining and could be turning bearish which is a hint of further price declines. Stochastic is declining after a bearish crossover.

Support	1795.65	1786.60	1773.30
Resistance	1806.65	1817.60	1825.05

USD/CAD -Our call on this pair was wrong and we lost 40 pips as a result. Expectation that OPEC+ might turn on the tap in August, increasing supply and fear of a demand decrease due to new COVID-19 clampdown send crude oil prices lower by 2% and weakened the Canadian dollar. Price is back near a strong resistance at 1.3625, which is likely to determine the next direction of USD/CAD.