FX Commentary – U.S. Index Is At Its Weakest In 2 Years

Market Talk

  • The dollar index stood at its lowest level in nearly two years in early Monday trade as tit-for-tat consulate closures in China and the United States fanned worries about worsening diplomatic ties between the world’s two largest economies.
  • Hopes of a quick U.S. economic recovery are fading as coronavirus infections showed few signs of slowing. That means the U.S. economy could capitulate without fresh support from the government, but hopes that Congress will agree on a stimulus deal before its summer recess are fading.
  • Last week a recovery in the U.S. job market unexpectedly stalled, while purchasing manager surveys showed Europe’s recovery pulling ahead adding to nerves about any let-up in U.S. stimulus.
  • The euro changed hands above 1.17 having hit a 22-month high of $1.1724 as sentiment on the common currency improved after European leaders reached a landmark deal on a recovery fund in a major step towards more fiscal cooperation.
  • Gold rose in Monday early trading to its record high of $1,944, its historical high as Sino-U.S. tensions and concerns about the global economy boosted the allure of yellow metal. An ongoing spread of the coronavirus across the U.S. continues to threaten economic growth and aid gold.

Chart Focus AUD/USD
Key Points
1. Buy AUD/USD recommendation
2. Buy AUD/USD at 0.7105. Stop at 0.7060 and target at 0.7235
3. An increasing number of coronavirus cases and Congress stalling on economic package are both weighing on the US dollar.
4. Price supported at Fibonacci 50% correction point and 20EMA with momentum bullish could be signs of a correction and more price upsides ahead.

Fundamental Comments
1. An increasing number of coronavirus cases in the U.S. are weighing on the US dollar
2. Congress stalling on economic stimulus as a result of political parties’ differences is weighing on the US dollar.

Technical Comments
1. Price is supported by the Fibonacci 50% correction point and 20EMA which could lead to another test of high.
2. Both MACD and Stochastic are turning up which could be a hinting of more price upsides going ahead.

Key Levels

Support 0.71050.70650.7035
Resistance 0.71450.71850.7240

Technical Overview
USD/JPY – Our sell call was not filled on Friday as price only reached a high of 106.41. Price has continued to decline and is currently lower than Friday’s low of 105.68. There is no sign of a turnaround in price at the moment. MACD is still bearish and Stochastic is near to the oversold zone. 20EMA slope is steep and hinting of a strong bearish trend. The next support lies at 105.10.

Support 105.10104.50104.10
Resistance 105.65106.10106.40

EUR/USD – The rally continues into a 6th day, reaching a 22-month high of 1.1724 in Monday morning trades. Stochastic is in the overbought zone but MACD is bullish and strong. 20EMA slope is steep as well which is a hint of a strong trend. Trend is likely to override Stochastic reading and we are likely to see price test the important resistance at 1.1745 or 1.1800 in the next couple of days.

Support 1.16901.16451.1610
Resistance 1.17251.17501.1800

GBP/USD – The price rally continued into Monday on the back of a weak U.S. dollar to a high of 1.2858. Stochastic is into the overbought extreme but 20EMA is pointing higher and its slope is steep which is a sign of a strong trend. However, MACD may be starting to form a bearish divergence warning. As long as price stays above 1.2770, we remain bullish for 1.2925. Below 1.2770 would warn of a high in place and a bigger correction in store.

Support 1.28101.27701.2720
Resistance 1.28601.29051.2945

XAU/USD – The rally that started last Monday continued without any significant correction into Monday morning and brought price to a new historical high of $1944.38. While Stochastic is in the overbought zone, MACD is still rising and showing a strong bullish trend similar to the 20EMA. There is no divergence warning of a possible high forming as yet. We remain bullish as long as price stay above $1921.

Support 1928.801919.651906.55
Resistance 1944.401960.501972.10

USD/CNH – Price reached a high of 7.0300 on Friday and has been on the decline. Price is currently near to the Fibonacci 50% of the rally from 6.9614 to the high of 7.0300. Price is below the 20EMA which is a hint that we may see the low at 6.9920 and the Fibonacci 62% at 6.9876 tested over the next couple of days. The reaction at these two points will likely determine the next direction of this pair.

Support 6.99606.98756.9615
Resistance 7.00607.01707.0285

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