FX Commentary – US Dollar May Have Reached A Short Term Bottom

Market Talk

  • The dollar was up on Monday morning in Asia, clinging on to gains from its rebound last Friday, driven by concerns about a slowing of U.S. economic recovery from COVID-19 pandemic and failure by US Congress policymakers to reach a consensus on economic stimulus package.
  • The Australian dollar felt the impact as the state of Victoria declared a state of disaster on Sunday and tightened existing lockdown measures after reporting 671 cases. The yen weakened to 106.20 yen, after gaining to a 4-1/2-month low of 104.195. The euro also was off Friday’s two-year high of $1.1908
  • China reported a better-than-expected Caixin Manufacturing PMI on Monday morning of 52.8, higher than the official PMI of 51.1 released on Friday. Both PMI readings were above the 50-mark indicating expansion of the Chinese economy helping the yuan recover to 6.9785.
  • U.S.-China tensions simmered over the weekend after U.S. President Donald Trump threatened to ban popular video app TikTok, which is owned by Chinese tech company ByteDance, on Friday. Secretary of State Michael Pompeo also said on Sunday that the U.S. will act shortly on Chinese software companies that are providing data directly to the Beijing government, thus posing a risk to U.S. national security.
  • Gold prices were up on Monday morning in Asia, reaching record highs and continuing its march towards the $2,000 mark. Gold has been powered by persistently low interest rates, a dollar at two-year lows and uncertainties of whether the U.S. Congress will be able to pass a new COVID stimulus bill.

Chart Focus USD/CHF
Key Points
1. Buy USD/CHF recommendation
2.  Buy USD/CHF at 0.9135. Stop at 0.9090 and target at 0.9220
3. An increase in coronavirus cases and US economic recovery are both driving investors into safe haven US dollar.
4. A breakout of a V-shaped chart pattern with bullish momentum is hint of further price upsides.

Fundamental Comments
1. A global increase in the number of coronavirus cases is driving investors into safe haven US dollar.
2. Concerns about US economic recovery affected by the coronavirus is also driving investors into the safe haven US dollar.

Technical Comments
1. A breakout of a V-shaped chart pattern is hinting of more price upsides
2. Stochastic is rising and MACD is also rising. Both momentum indicators are hinting of further price upsides.

Key Levels

Support 0.91250.90900.9055
Resistance 0.91650.91900.9225

Technical Overview
USD/JPY – Price reached a low of 104.18 on Friday and this morning we saw a price move to 106.42. The high was near to the Fibonacci 62% which was the decline from 107.45 to 104.18. If price is unable to move above this resistance, we are likely to see another test of 104.18 again. Above this resistance, price is likely to test the high of 107.30 again. Stochastic is near to the overbought zone but MACD is turning bullish. 20EMA is also bullish and pointing higher.

Support 105.70105.30104.95
Resistance 106.15106.45106.70

EUR/USD – Price reached a high of 1.1908 on Friday and has been declining. We saw a low of 1.1740 this morning and we think price is likely to move lower to the Fibonacci 38% of the rally from 1.1165 to 1.1908 at 1.1650. MACD has given divergence warning but is currently in the bullish zone at the moment. 20EMA has turned bearish and is pointing lower.

Support 1.17351.16901.1650
Resistance 1.17851.18251.1855

GBP/USD -Price reached a high of 1.3170 on Friday but with divergence warnings from both MACD and Stochastic on the hourly chart. Today we saw price declined to 1.3055 but we think price is likely to continue moving lower to 1.2970 over the next couple of days. First support lies at 20EMA point of 1.3035 and a fall below this point is likely to accelerate the decline. Only a move beyond 1.3170 would negate our bearish view.

Support 1.30401.29901.2945
Resistance 1.30951.31301.3170

XAU/USD – Price reached a new historical high of $1984.85 early this morning with divergence warnings from both MACD and Stochastic. This could be a short term high and we could see a correction back to Fibonacci 38% of the rally from $1790 to $1984, which lies at $1908 over the next few days. 20EMA support lies at $1961 and a fall below this point is likely to accelerate the decline.

Support 1970.051961.201947.60
Resistance 1984.851991.952000.00

AUD/JPY – On Friday, a price rally was capped at 75.90, which was the Fibonacci 62% of the decline from 76.85 to 74.80. Stochastic has a bearish crossover near to the overbought zone. MACD and 20EMA is about to turn bearish. We see a price decline to 74.26 over the next few days. This is the Fibonacci 127% of the previous price decline. Only a move above 76.00 would negate our bearish view.

Support 75.2574.8074.40
Resistance 75.5575.9076.15

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