FX Commentary – Unemployment Claims Casts Doubt On U.S. Economic Recovery

Market Talk

  • The dollar was down on Friday morning in Asia, with the U.S. struggling to curb its surging number of COVID-19 cases. Combined with the looming expiry of some stimulus measures at the end of July as well as a record number of unemployment claims, investors are casting doubt over the U.S.’ recovery prospects.
  • China has said it “must” retaliate after the U.S. ordered its Houston consulate to shut this week, amid allegations of spying. The editor of China’s Global Times said on Twitter that Beijing will announce countermeasures on Friday and ask one U.S. consulate to close.
  • U.S. weekly jobless claims came in at 1.416 million for last week, higher than expectation and marking the 18th straight week in which initial claims totalled more than 1 million, suggesting the United States’ economic recovery is stalling amid resurgence in COVID-19 cases.
  • The safe-haven yen advanced to a one-month high on Friday as deteriorating Sino-U.S. relations heightened investor anxiety; The Australian and New Zealand dollars were also off from multi-month highs. The Euro rose to a 21-month peak against the dollar after the EU reached an agreement on a EUR750 billion COVID-19 rescue package earlier in the week.
  • Gold traded to a high of $1,898.23 an ounce, edging closer to its all-time high set almost nine years ago, as concerns about global growth buoyed haven demand. Increasing signs that the prolonged coronavirus pandemic is stalling an economic recovery and the recent surge in tensions between the U.S. and China are underpinning demand for the metal.

Chart Focus USD/JPY
Key Points
1. Sell USD/JPY recommendation
2. Sell USD/JPY at 106.65. Stop at 106.95 and target at 106.05
3. Sino-U.S. relationship deteriorating and resurgence in US coronavirus cases are weighing on the US dollar and aiding the safe haven yen.
4. Momentum indicators are bearish and pullback in price offers a good opportunity to get into the downtrend.

Fundamental Comments
1. Deteriorating Sino-U.S. relationship has heightened investor anxiety and has moved capital into safe haven yen.
2. An increase in coronavirus cases is suggesting the United States’ economic recovery is stalling amid resurgence in COVID-19 and weighing on the U.S. dollar.

Technical Comments
1. Pullback towards the previous support turned resistance and Fibonacci 38% correction point offer an opportunity to get into the downtrend
2. MACD is bearish and Stochastic is moving lower. Both are hints of more price declines ahead.

Key Levels

Support 106.35106.00105.55
Resistance 106.65106.90107.20

Technical Overview
EUR/AUD – Yesterday, we had a sell call but we were stopped out on this position for a loss of 50 pips. Price continues to move higher and today, we are near to the previous high of 1.6398. Stochastic has reached almost the overbought zone but MACD has turned bullish. The resistance at 1.6400 will need to break for price to advance towards 1.6465. If price is capped below 1.6400, we are likely to see a decline to 1.6230.

Support 1.63451.63051.6250
Resistance 1.64001.64551.6495

EUR/USD – The rally continues into a 5th day, reaching a high of 1.1626 overnight. Stochastic is into the overbought extreme but MACD is strongly bullish. 20EMA is pointing higher and its gradient is steep, hinting of a strong bullish trend. Price is currently above the 20EMA and if price can stay above the support at 1.1560, we are likely to see a move beyond 1.1626 to 1.1740 over the next few days.

Support 1.15851.15401.1510
Resistance 1.16251.16551.1695

GBP/USD – We are long on this pair after our order was filled on Wednesday at 1.2670. Yesterday we had raised our stop to cost and kept profit order at 1.2760.  A price decline stop at 1.2672 overnight before a rally took price to a high of 1.2772. We make a profit of 90 pips on this trade. MACD is bullish but Stochastic is declining from overbought extreme. We think price may have made a high and a correction is likely to 1.2640 over the next few days.

Support 1.27201.26701.2625
Resistance 1.27701.28101.2845

XAU/USD – The rally that started on Monday continued into Thursday and brought price to a high of $1898.23. Despite the rally, MACD is still strong and bullish. MACD’s fast line is also rising from the zero line. Price is also far above its 4-hourly 20EMA, hinting of a strong bullish trend. The slope of the 20EMA is also steep. Price is likely to target the historical high at 1920 over the next few days.

Support 1876.601863.551854.05
Resistance 1890.451898.251911.60

USD/CNH – Price had jumped from 6.9690 to a high of 7.0170 on news of Sino-U.S. tensions on Wednesday and the rally has continued to a high of 7.0283 this morning. MACD has given divergence warning and Stochastic is into the overbought extreme. We are likely to see a price correction back to 6.9950 over the next couple of days. 20EMA is still rising and hinting of a strong bullish trend

Support 7.01706.99256.9745
Resistance 7.02857.03607.0460

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