FX Commentary – US Dollar Consolidates As Market Weighs Options

Market Talk

  • A US dollar rebound that started last Friday paused on Tuesday, as investors weighed mixed but encouraging economic data against slow progress toward a U.S. government spending package and another week of rising coronavirus deaths.
  • Chicago Fed President Charles Evans reiterated overnight that the next help for the virus-battered U.S. economy must come from fiscal policy. Investors are now watching for signs of progress in Washington on U.S. government spending packages.
  • A better-than-expected expansion in the Institute for Supply Management’s U.S. manufacturing index was a positive for the dollar but it came with a warning. Output remains far below pre-virus levels and the employment index was below forecasts.
  • The recent surge in the euro, on the back of the proposed €750 billion recovery fund may have reached a peak at 1.1908. The yen also recovered some overnight losses to sit at 106.08 per dollar, as did Australian dollar though it was softer at $0.7120 after RBA kept cash rate unchanged at 0.25%
  • Gold was up on Tuesday morning in Asia, after reaching a new record high on Monday as investors weigh a weak US dollar and slow progress towards a U.S. COVID-19 stimulus package and rising coronavirus deaths.

Chart Focus NZD/USD
Key Points
1. Sell NZD/USD recommendation
2. Sell NZD/USD at 0.6610. Stop at 0.6650 and profit target at 0.6530
3. A better-than-expected ISM data and rising coronavirus cases are both supportive of the US dollar.
4. A Double Top chart pattern with bearish MACD is a hint of more price declines ahead.

Fundamental Comments
1. A better-than-expected expansion in ISM manufacturing index was a positive for the dollar
2. Rising coronavirus cases is keeping investors’ demand in safe haven US dollar.

Technical Comments
1. A break of the Double Top chart pattern is hinting of more price declines ahead
2. MACD is bearish with both its lines below the zero line.

Key Levels

Support 0.65950.65500.6520
Resistance 0.66200.66650.6705

Technical Overview
USD/JPY – Price reached a low of 104.18 on Friday and this morning we saw a price move to 106.46, which was slightly higher than the high of 106.42 yesterday. MACD is bullish but Stochastic is in the overbought zone. 20EMA is bullish and pointing higher. As long as price is capped at 106.46, which is the Fibonacci 62% of the decline, we remain bearish for 104.18 again over the next few days.

Support 105.60105.15104.75
Resistance 106.10106.50106.85

EUR/USD – Price had reached a high of 1.1908 on Friday and last night we saw a decline to 1.1695. Stochastic is turning up from the oversold zone and moving higher. MACD is still bullish and the fast line is turning up from below the zero line, hinting of a price rally ahead. We think price is likely to test 1.1825 or 1.1855 but we do not see price moving above 1.1908. We see this rally as part of a correction.

Support 1.17501.16951.1650
Resistance 1.17951.18401.1880

GBP/USD -After reaching a high of 1.3170 on Friday, we saw a decline to 1.3005 last night.  Stochastic is starting to turn up from its mid-range and price has managed to stay above the 20EMA. MACD is still bullish and the fast line is turning up from the zero line, hinting that price could be moving up again. We may see another test of the 1.3170 again if MACD turns up.

Support 1.30401.30001.2945
Resistance 1.30951.31301.3170

XAU/USD – Price had reached a new high of $1984.85 on Monday morning with divergence warnings from both MACD and Stochastic. Our view remains the same as yesterday. We think this could be a temporary high and we are likely to see a correction lower to $1908 over the next few days. Stochastic has a bearish crossover and is heading lower and MACD is about to turn bearish.

Support 1970.051961.201947.60
Resistance 1978.451991.952000.00

USD/CHF – Our buy call was not filled yesterday. Instead, price continues to move higher and has exceeded our profit target near the end of the New York session. This morning we saw a low of 0.9160, which was Fibonacci 38% of the rally. We may see another decline to 0.9145 as MACD has not turned up as yet. A move below 0.9115 would turn the short-term trend bearish.

Support 0.91600.91250.9090
Resistance 0.91950.92400.9285

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