FX Commentary – US Dollar Gains On Global Tensions

Market Talk

  • The dollar was up on Thursday morning in Asia, reversing overnight losses as investors turn towards the safe-haven dollar after hopes for a COVID-19 vaccine by Moderna dimmed and U.S.-China tensions continue to escalate. A second wave of coronavirus infections is also triggering a return to restrictions on business activity that threatens economic growth.
  • Global tensions also remain elevated, with Britain ordering equipment from China’s Huawei be purged from its communications network by 2027, prompting a warning from Beijing.
  • China reported a 3.2% growth in its second quarter GDP year on year, with the country dodging a recession amid COVID-19’s economic impact. Unemployment rate and retail sales were also better than expectation but failed to aid the Yuan as the USD/CNH moves back towards 7.00 from an overnight low of 6.9784
  • The British pound was down to 1.2556 after rising to an overnight high of 1.2649 as tensions between the U.K. and China rose over the UK’s government directive to purge Huawei equipment from the country’s telecommunication network by 2027.
  • Gold prices edged up, holding above the key $1,800 level, as a surge in coronavirus cases and escalating U.S. – China tensions bolstered the yellow metal demand, but a strong equities market capped the advance.

Chart Focus GBP/USD
Key Points
1. Sell GBP/USD recommendation
2. Sell GBP/USD at 1.2560. Stop at 1.2605 and target at 1.2465
3. Global tensions and coronavirus pandemic are driving demand for the safe haven U.S. dollar.
4. A bearish Engulfing candlestick and bearish MACD and Stochastic are all hinting of further price declines ahead.

Fundamental Comments
1. U.K.-China tension rose over the UK’s government directive to purge Huawei equipment from the country’s telecommunication network weighing on the pound.
2. The U.S. dollar gained after hopes for a COVID-19 vaccine by Moderna dimmed and U.S.-China tensions continue to escalate.

Technical Comments
1. A bearish Engulfing candlestick price pattern is an indication of further price declines.
2. MACD has turned bearish and is moving lower. Stochastic has a bearish crossover and is moving lower.

Key Levels

Support 1.25251.24801.2435
Resistance 1.25651.25951.2645

Technical Overview
USD/JPY – Price moved lower than our expectation of 107.00 to a low of 106.66. We are likely to see a bigger and prolong correction than our anticipation. The correction seems incomplete and we are expecting another movement lower to 106.45 to end the correction. MACD has turned bearish but Stochastic has a bullish crossover and is rising from near the oversold zone. Resistance is at 107.00.

Support 106.65106.20105.95
Resistance 107.05107.40107.75

EUR/USD -The rally continued into a fourth day to a high of 1.1451 last night but there are signs of a possible reversal. On the 4-hourly chart, there is a nice Shooting Star candlestick price pattern, which is a warning of a top in place. Stochastic had a bearish crossover in the overbought zone and is declining lower but MACD is still bullish. Price has declined to 1.1395 currently and we may see a movement to 1.1360 in the next 24 hours.

Support 1.13851.13551.1315
Resistance 1.14201.14501.1490

USD/CNH – A better than expectation set of Chinese data this morning had failed to spark Yuan’s strength. USD/CNH has gained from an overnight low of 6.9785 to above 7.00 currently and looks set to move higher to 7.0070, which is also the important Fibonacci 62% of the past few days’ decline. MACD is bullish and both MACD and Stochastic are rising, hinting of more price upsides ahead to 7.0250.

Support 6.99456.97856.9620
Resistance 7.00607.01607.0250

XAU/USD – A break of support at $1795 has led to a test of the range support at $1791 on Tuesday. After hitting a low of $1790.30, price has rallied higher to $1815 overnight but the momentum seems to have been lost. Price has been unable to push higher and we might see a decline to $1791 again over the next 48 hours as Stochastic has a bearish crossover and is moving lower. Bullish MACD trend has also weakened.

Support 1802.201790.301776.45
Resistance 1813.201825.051835.55

AUD/USD -Price went to a high of 0.7037 overnight but has declined to 0.6981, which is where the 20EMA lies at the moment. As long as price can stay above the 20EMA, we remain bullish. We would recommend keeping stop and profit order unchanged at 0.6955 and 0.7070 respectively. MACD remains bullish but Stochastic is still correcting from the overbought extreme.

Support 0.69800.69550.6920
Resistance 0.70100.70400.7070

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