Market Talk
- The U.S. dollar bounced and the yuan slumped on Friday morning trades after U.S. President Trump took steps to ban transactions with the Chinese owners of two popular mobile apps, Tencent and Tik-Tok, raising already-heightened tensions between the two largest economies.
- The US dollar gained against the Swiss franc, the pound, and the euro while the Aussie dollar was hurt by concerns about worsening U.S.-China relations and the Reserve Bank of Australia’s downbeat assessment of the local economy.
- On the economic data front, China’s trade figures for July showed exports surged 7.2% from a year earlier and were away above economists’ forecast of 0.2% fall; Data showed China has recovered from the economic hit of the coronavirus pandemic.
- Investors are looking to the next U.S. fiscal aid package to further cope with fallout from the COVID-19 pandemic. But Senate Majority Leader Mitch McConnell said on Thursday Republicans and Democrats remained far apart over what to include in another wave of relief.
- Gold extended its record breaking rally, reaching another record high of $2075 on Friday, driven by expectations of more monetary stimulus for the US economy hard hit by the coronavirus pandemic as cases continue to surge in the U.S.
Chart Focus USD/CNH
Key Points
1. Buy USD/CNH recommendation
2. Buy USD/CNH at 6.9570. Stop at 6.9480 and target at 6.9880
3. An increase in Sino-US tensions is driving demand into safe haven US dollar and away from the Chinese Yuan.
4. Price correction to the 20EMA with bullish momentum indicators are signs of a possible rally ahead.
Fundamental Comments
1. An increase in US-China tensions after Trump’s took steps to ban transactions with Tencent and Tik-Tok is likely to drive demand towards safe haven US dollar.
2. Any likely retaliation from China is likely to worsen already-heightened tensions between the world’s two largest economies and lead to demand for US dollar.
Technical Comments
1. A price correction to the 20EMA offers a good opportunity to get into a bullish trend.
2. Stochastic is rising after a bullish crossover from the oversold zone and MACD is also rising.
Key Levels
| Support | 6.9560 | 6.9320 | 6.9030 |
| Resistance | 6.9740 | 6.9885 | 7.0080 |
Technical Overview
USD/JPY – Our sell call on this pair was filled on Wednesday but price is not making headway. For the past 48 hours, the range has been less than 57 pips. We do not see price making a major move before the NFP tonight. MACD is flat and neutral at the moment. 20EMA is similar. We would suggest closing out the position at current 105.60 for a small profit of 15 pips.
| Support | 105.30 | 104.95 | 104.65 |
| Resistance | 105.70 | 106.15 | 106.50 |
EUR/USD – Price reached a new 2-year high at 1.1915 on Thursday morning and with divergence warning from MACD indicator. Price has dropped below the 20EMA and MACD has turned bearish. Stochastic is declining. Price will need to move below 1.1815 to continue the downtrend. 20EMA resistance point at 1.1855 should cap price rally. Above 1.1890 would negate our bearish view.
| Support | 1.1820 | 1.1790 | 1.1750 |
| Resistance | 1.1860 | 1.1890 | 1.1915 |
GBP/USD -Price broke above 1.3170 to reach a high of 1.3185 overnight. However, the high was accompanied by a divergence warning from MACD. Stochastic has a bearish crossover and is moving lower. If price were to drop below the 20EMA support at 1.3110, we could see a price correction to 1.2970 over the next few days. Above 1.3185 would negate our bearish view for the next few days.
| Support | 1.3095 | 1.3045 | 1.2990 |
| Resistance | 1.3140 | 1.3185 | 1.3210 |
XAU/USD – The price rally continues into a fourth day and reached a new historical high at $2075. MACD is starting to warn with divergence and Stochastic has a bearish crossover in the overbought zone and is starting to come down. However 20EMA is still rising and its slope is steep, which is a hint of a strong bullish trend. We remain bullish for $2082 but is cautious.
| Support | 2048.20 | 2034.10 | 2020.70 |
| Resistance | 2062.50 | 2075.00 | 2082.00 |
NZD/USD – Our buy call was filled at 0.6640 yesterday when price reached a low of 0.6632. Overnight price reached a high of only 0.6689 missing our profit target at 0.6690. Price has declined to 0.6660 at the time of writing but our view remains unchanged. We think there should be another rally to test the 0.6700 handle later today. Stochastic is declining but MACD is still bullish and the fast line could be turning up soon, giving us hopes of another rally.
| Support | 0.6650 | 0.6620 | 0.6595 |
| Resistance | 0.6690 | 0.6715 | 0.6755 |
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