FX Commentary – Euro At 4-month High Ahead of EU Meeting

Market Talk

  • The euro rose to a four-month high, its highest level since March 10 and not far off its peak so far this year of $1.1495 against the dollar on Wednesday on hopes European Union leaders may agree on stimulus and deepening fiscal integration to shield the economy from the pandemic.
  • The euro has been helped by hopes the European Union could agree at its summit later this week on a rescue financing package that will limit the economic damage to the bloc from the coronavirus pandemic.
  • The dollar was on the defensive, particularly against other growth-leveraged currencies such as the Australian dollar, following an uptick in U.S. inflation the most in nearly eight years, in June, easing worries about deflationary pressures from the economic downturn and news of progress in vaccine development.
  • Sterling, however, underperformed after data showed Britain’s economy was recovering more slowly than forecast. Gross domestic product rose by 1.8% in May after falling by a record 20.8% in April, well below forecasts in a Reuters poll.
  • The Canadian dollar bounced back from a two-week low ahead of a central bank meeting later tonight. BOC is expected to leave rates on hold at a policy announcement on Wednesday, with investors likely to focus on the bank’s outlook for the economy and potential guidance on its bond-buying program.

Chart Focus AUD/USD
Key Points
1. Buy AUD/USD recommendation
2. Buy AUD/USD at 0.6990. Stop at 0.6955 and target at 0.7070
3. An uptick in inflation and new of progress of a COVID vaccine has turned investors into riskier currency instead of safe haven U.S. dollar.
4. Price is breaking out of a range with MACD and Stochastic both hinting of further price upsides.

Fundamental Comments
1. An uptick in U.S. inflation has eased investors’ fear of deflationary pressure on US economy.
2. New of progress in vaccine development for COVID-19 has also moved investors away from safe haven into riskier currency.

Technical Comments
1. Price is breaking out of a triple high range with 20EMA bullish and pointing higher.
2. MACD is bullish and Stochastic is moving higher after a bullish crossover.

Key Levels

Support 0.69600.69200.6885
Resistance 0.70000.70400.7070

Technical Overview
USD/JPY –Price reached a low of 106.52 on Friday and we have seen price rallied to 107.42 this morning.  Price may have missed our target but a 5-wave movement may have ended with a correction process in store ahead. MACD has turned neutral but Stochastic is still rising. 20EMA has also turned flat. We see a price correction down to 107.00 before another rally can resume.

Support 107.10106.75106.40
Resistance 107.40107.75108.15

EUR/USD -A break of 1.1374 has led to a higher test of 1.1420. A high of 1.1422 was reached but that was in the form of a bearish Engulfing candlestick pattern. This reversal price pattern calls for a decline to 1.1360. Stochastic has a bearish crossover in the overbought zone and could be heading lower but MACD is bullish. We see the decline as a correction before the uptrend resumes again

Support 1.13901.13601.1330
Resistance 1.14201.14601.1490

GBP/USD – Price miss our target at 1.2465, only reaching a low of 1.2479 overnight. Price has moved higher to 1.2580 but our view still remains unchanged. We see another down leg to 1.2465 to complete this downtrend. We would recommend keeping stop at 1.2605 and profit at 1.2465 unchanged. MACD is still bearish but Stochastic is rising from oversold extreme.

Support 1.25551.25201.2485
Resistance 1.26051.26651.2720

XAU/USD – A break of support at $1795 has led to a test of the range support at $1791. After hitting a low of $1790.30, price has rallied higher to $1811.25 overnight. We think the correction has ended at $1790.30 and the uptrend should resume for a test of $1825. Stochastic has a bullish crossover and is heading higher while MACD is still bullish and its fast line is rising as well.

Support 1804.951795.601786.60
Resistance 1813.201825.051835.55

USD/SGD -Price had bounced higher from the support at 1.3870 on Monday to reach a high of 1.3945 yesterday. Price has started to decline from this high and we see a continuation of this decline to test the low of 1.3870 again as MACD has turned bearish and is moving lower. Stochastic has a bearish crossover and is moving lower as well, hinting of a price decline going forward.

Support 1.38951.38701.3820
Resistance 1.39201.39501.3975

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