FX Commentary – Dashed Hopes Of A Quick US Economic Recovery Sank US Dollar

Market Talk

  • The U.S. dollar languished near two-year lows on Wednesday as the United States struggled to contain its coronavirus epidemic, dashing hopes for a quick economic recovery and leading investors to question its relative economic strength.
  • US dollar weakness stemmed from an eroding perception that U.S. economic growth would be stronger than the rest of the developed world and that investors could count on higher returns in the dollar but US interest rate has dropped close to zero while 10-year note yields only 0.5773%
  • U.S. consumer confidence fell more than expected in July to 92.6 from the previous month 98.3 with economist forecast of 94.0, losing steam following two months of recovery, in a fresh sign that rising COVID-19 infections are dampening consumption and dashing hopes for a quick U.S. economic recovery
  • The euro stepped back from Monday’s 22-month high of $1.1781 to trade at $1.1723 while Sterling fetched $1.2935, having hit a 4 1/2-month high of $1.2952 on Tuesday. The Australian dollar traded at $0.7158, near its 15-month peak of $0.7184 touched a week ago.
  • Spot gold, a real-time indicator of trades in gold bullion, was up $9.33, at $1,951 after hitting a historical high of $1,981.13 on Monday. Gold has gained on expectation of more monetary stimulus to support the coronavirus hit US economy.

Chart Focus EUR/USD
Key Points
1. Buy EUR/USD recommendation
2. Buy EUR/USD at 1.1725. Stop at 1.1675 and target at 1.1840
3. An increase in coronavirus cases and a bigger than expected fall in consumer confidence are dashing hopes of a quick US economic recovery and weighing on the US dollar.
4. Price is supported at the 20EMA with MACD bullish and turning up is signs that the uptrend is likely to continue.

Fundamental Comments
1. An increase in coronavirus cases in the US is dashing hopes for a quick US economic recovery.
2. A bigger than expected fall in consumer confidence is a fresh sign that is dashing hopes of a quick US economic recovery

Technical Comments
1. Price is supported at the 20EMA, hinting that the uptrend in price is likely to continue
2. MACD is bullish and the fast line is turning up which is a hint of further price upsides going ahead.

Key Levels

Support 1.16951.16451.1590
Resistance 1.17451.17801.1815

The downtrend continues and price reached a low of 104.94 overnight. The price decline has exceeded the Fibonacci 200% of the previous decline from 108.15 to 106.66. The decline is likely to continue lower to Fibonacci 261% at 104.40 over the next few days. MACD is bearish and moving lower. Stochastic is also moving lower into the oversold zone. 20EMA is also bearish.

Support 104.45104.10103.65
Resistance 105.00105.55105.95

USD/CAD – Price reached a low of 1.3330 on Tuesday and there was MACD divergence warning of a possible low. However, the rally off this low only reached a high of 1.3402 and has started to decline. The weak rally is a hint of another test of the low and the downtrend is not completed as yet. We see a decline to test the 10 June low of 1.3315. The reaction at this low will likely determine the next direction.

Support 1.33451.33151.3245
Resistance 1.33751.34101.3445

GBP/USD – Price rally continues to a high of 1.2952 overnight despite a divergence warning from MACD. We are expecting the rally to continue higher 1.3015 if price is supported at the previous high turned support at 1.2905. MACD is still bullish and both its lines are high above the zero line, hinting of a strong bullish trend. The gradient of 20EMA is also steep, hinting of a strong bullish trend.

Support 1.29051.28751.2840
Resistance 1.29551.29951.3035

XAU/USD – Price reached a historical high of $1981.10 yesterday and fell to a low of $1906.75 but has managed to climb back above $1921 to $1953. Price is currently supported by the 20EMA line at $1953. As long as price stay above the 20EMA, we are expecting another test of the high at $1981 again. MACD is still bullish and Stochastic is close to the overbought zone.

Support 1947.601934.601922.85
Resistance 1964.051981.002000.00

USD/SGD – Our buy order was filled and our view remains unchanged. We would recommend keeping stop at 1.3745 and target at 1.3860. MACD is bearish and could be turning down again. Stochastic is also weak and barely moved above the oversold zone. 20EMA is still bearish and pointing lower. The downtrend may not be over as yet and this is our main worry.

Support 1.37551.37001.3640
Resistance 1.37951.38201.3870

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