FX Commentary – Euro Gains On Hopes of Recovery Fund

Market Talk

  • The euro hovered near four-month highs of $1.1452 against the dollar on Monday as investors held on to hopes that European leaders would break a deadlock and hammer out an economic rescue deal to revive European economies throttled by the COVID-19 pandemic.
  • Investor focus is squarely on a EU Summit, where leaders are haggling over a proposed 750 billion euro recovery fund, which is supposed to be raised on behalf of them all on capital markets by the EU’s executive EC but a group of “frugal” wealthy north European states were pushing for a smaller fund and seeking to limit how pay-outs are split between grants and repayable loans.
  • The dollar is broadly weak as investors maintained strong risk appetite, betting on stimulus from the United States. In the U.S, Congress is set to begin debating a new aid package this week, as several states in the country’s South and West implement fresh lockdown measures to curb the virus.
  • Weaker economic data and falling demand as the University of Michigan’s index of consumer sentiment fell to 73.2 in early July and rising coronavirus cases in the US cast doubts on the U.S. economy’s ability to bounce back faster than that of its rivals.
  • Gold coasted to a sixth-straight winning week on Friday as a new spike in the coronavirus, uncertainty for the global economy, and prospects of a Joe Biden victory in the U.S. presidential election continued to lure investors toward the safe-haven yellow metal.

Chart Focus AUD/USD
Key Points
1. Buy AUD/USD recommendation
2. Buy AUD/USD at 0.6980. Stop at 0.6945 and target at 0.7040
3. Stimulus is increasing risk appetite while weaker U.S. economic data is casting doubts over US economic strength over its rivals
4. Price is supported by multiple support levels and both Stochastic and MACD are bullish and rising, hinting of more price upsides ahead.

Fundamental Comments
1. Stimulus from the U.S. and EU are increasing market appetite and aiding riskier currencies and denting demand for safe haven U.S. dollar.
2. Weaker UoM consumer sentiment and rising coronavirus cases in the U.S. is casting doubts that the U.S. economy will have the ability to bounce back stronger than its rivals.

Technical Comments
1. Price is supported by the 20EMA and also by a previous strong support level.
2. MACD is bullish and Stochastic is rising after a bullish crossover was seen.

Key Levels

Support 0.69600.69200.6890
Resistance 0.70000.70400.7060

Technical Overview
USD/JPY – Price was trapped in a range of 106.65 to 107.42 last Thursday and Friday. Price broke above the high of 107.42 to a high of 107.53. There was a false break of a Double Bottom chart pattern calling for a price move to 108.15. Price is back into the range and moving towards the 20EMA at 107.20 and a break is likely to signal a false breakout and a decline to 106.90.

Support 107.20106.90106.65
Resistance 107.55107.80108.15

EUR/USD -A break of the four-month high at 1.1452 is likely to lead price higher to the next resistance at 1.1490. Stochastic is rising and not yet into the overbought zone. MACD is bullish and rising and 20EMA is also bullish and pointing higher. All these point to a movement to 1.1490. A negative outcome from EU’s summit could reverse this bullish scenario.

Support 1.14201.13751.1345
Resistance 1.14551.14901.1515

GBP/USD – Price range has narrowed towards the end of last week and currently for today, price is within Friday’s range of 1.2511 to 1.2574. We favour a movement above 1.2574 for today as Stochastic is rising after reaching the oversold zone. MACD is close to the zero line and could turn bullish. Price has currently moved above the 20EMA but a move below 1.2500 would negate our bullish view.

Support 1.25201.24801.2435
Resistance 1.25751.26251.2665

XAU/USD – After hitting a low of $1793 last Friday, price has rallied higher to $1812. This morning a decline was halted by the 20EMA at $1805 and if price can hold above the 20EMA, we see a rally to test the previous high of $1815. MACD is still bullish and the faster line is rising from the zero line. Stochastic line is still declining from the overbought zone but we could see a bullish crossover.

Support 1805.601793.701786.90
Resistance 1817.651828.551837.90

XAG/USD -Our sell call on Silver was filled on Friday and our view remains unchanged. An increase in risk appetite today is not good for our position. We would suggest keeping stop and profit order unchanged at $19.60 and $18.45 respectively. While Stochastic is rising after a bullish crossover, MACD is showing weaker strength in the rally. It could mean price is approaching a possible high.

Support 19.2018.8518.45
Resistance 19.6519.9520.30

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