FX Commentary – US Dollar Starts The Week On Weaker Footing

Market Talk

  • The dollar was down on Monday morning on worries about US economic recovery as coronavirus cases continue to mount in the U.S., but capped its losses after a meeting between U.S. and Chinese officials, originally scheduled for Saturday, was delayed due to scheduling conflicts.
  • Data on Friday showed U.S. retail sales increased less than expected last month due to spiralling COVID-19 cases. U.S. factory output increased more than expected in July but remained below pre-pandemic levels while consumer sentiment was largely steady in the first half of August.
  • The fresh outbreaks of COVID-19 cases in Italy, Spain and France are capping the Euro, which has been on an upward trend since the European Union struck a deal for a EUR750 billion COVID-19 stimulus package in July.
  • The USD/JPY pair dropped 106.53 after Japan reported a record economic contraction in the second quarter earlier in the day, with GDP in second quarter shrinking 27.8% year-on-year.
  • Gold fell on Friday due to an uptick in U.S. Treasury yields but is up on Monday morning over signs of a slow US economic recovery. A logjam over a U.S. stimulus bill to help the coronavirus-hit economy and postponement of a dialogue between the U.S. and China are likely to support the yellow metal.

Chart Focus AUD/USD
Key Points
1. Buy AUD/USD recommendation
2. Buy AUD/USD at 0.7165. Stop at 0.7125 and target at 0.7235.
3. Weak U.S. economic data as a result of the coronavirus pandemic is weighing on the US dollar.
4. Price has rebounded from a strong support zone and both momentum indicators are hinting of more price upsides.

Fundamental Comments
1. Worries about US economic recovery as coronavirus cases continue to mount in the U.S is weighing on the US dollar
2. U.S. factory output increased more than expected in July but remained below pre-pandemic a level which is not a good sign for the U.S. dollar.

Technical Comments
1. Price is supported by a strong support zone as well as the Fibonacci 62% correction point which managed to provoke a rebound.
2. MACD has turned bullish and is rising. Stochastic has a bullish crossover and is rising.

Key Levels

Support 0.71600.71100.7075
Resistance 0.71950.72150.7245

Technical Overview
USD/JPY – Price has not managed to move beyond 107.05, which is also the Fibonacci 127% projection point of the rally from 104.18 to the high of 106.47 on 3 Aug. There is also divergence warning from both MACD and Stochastic. If price is capped at 107.05, we see a price decline 105.95 over the next few days to correct the two previous price rallies. A move above 107.05 would extend the rally to 107.70.

Support 106.40106.15105.70
Resistance 106.75107.05107.40

EUR/USD – We had a long position which was filled on Thursday and today price has reached a high of 1.1865. MACD is getting weaker and there could be a bearish divergence warning forming if price remains weak. Stochastic is also in the overbought zone. We would suggest taking profit at current 1.1860 for a 40 pips profit. If price can stay above the 20EMA, there is still a possibility of a test to 1.1915.

Support 1.18351.17901.1755
Resistance 1.18751.19151.1945

GBP/USD – For the past 5 trading days, price has been caught in a range of 1.3185 to 1.2980.  Momentum indicators are mixed. MACD is bullish and moving higher but Stochastic has a bearish crossover and is moving lower. If price can stay above 1.3080, we think price can test the resistance of 1.3185 again in the next couple of days.

Support 1.30801.30401.3000
Resistance 1.31301.31851.3210

XAU/USD – Our sell call was filled on Friday when price reached a high of $1956.35. Price had declined to a low of $1929.45 this morning but has bounced higher to $1942. Our view remains the same. We would recommend bring stop loss lower to $1957 while keeping profit target at $1860. MACD is near to the zero line and not hinting much but Stochastic has a bearish crossover and is declining.

Support 1937.401929.801920.15
Resistance 1948.901956.301966.35

USD/CAD – Price reached a high of 1.3270 on Friday but was unable to break through this resistance point. Price has declined to 1.3240 this morning and we think the decline is likely to continue. We see price testing the low of 1.3191 again over the next couple of days. Stochastic is still rising but MACD’s fast line has started to turn down from the zero line while the slow line remains bearish.

Support 1.32201.31901.3150
Resistance 1.32601.32951.3325

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