FX Commentary – Optimism Of A COVID-19 Vaccine Lowered Risk Sentiment

Market Talk

  • The dollar was down on Tuesday morning in Asia, as investors cheered signs of progress in U.S.-China trade negotiations and optimism over a U.S. health regulator’s authorization of a COVID-19 treatment lowered risk sentiment.
  • USD/CNH pair edged down to 6.9092 as the U.S. Trade Representative’s Office said in a statement that U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke with Chinese Vice Premier Liu He in a “regularly scheduled call,” with both sides seeing progress made on resolving issues in the phase one trade deal between the two countries.
  • The Euro hovers around $1.18 and the Aussie at $0.7179 in Asian morning trade. Sterling was pressured back below $1.31 as lack of progress in the latest round of Brexit talks with the European Union weighs on the British pound.
  • The oil-sensitive Canadian dollar fell about 0.3% overnight to 1.3238 per U.S. dollar, even though oil prices rose. The New Zealand dollar has been unable to trade above 66 cents for a week and last sat at $0.6524.
  • Gold prices dipped as optimism over U.S. authorization of a blood plasma treatment for Covid-19 weighed on safe-haven appetite but declines in the yellow metal were halted by concerns that Federal Reserve Chairman Powell will present on Thursday a dour assessment of the U.S. economy.

Chart Focus USD/CNH
Key Points
1. Buy USD/CNH recommendation
2. Buy USD/CNH at 6.9050. Stop at 6.8925 and target at 6.9260
3. Higher US Treasury yields and positive US data are both likely to keep the US dollar strong.
4. Indicators are showing divergence warning of a possible price low and reversal.

Fundamental Comments
1. Higher US Treasury yields overnight is likely to lift the U.S. dollar.
2. Positive US data on Friday is also likely to keep the U.S. dollar strong

Technical Comments
1. Price decline looks exhausted as the lower low are only marginal and with no follow through.
2. Stochastic and MACD are both looking to reverse and turn higher, hinting of a price rally ahead. Both indicators are also showing divergence warning of a reversal.

Key Levels

Support 6.90506.89256.8640
Resistance 6.91506.92606.9380

Technical Overview
USD/JPY – Price moved to a high of 106.06 last night but that does not negate our bearish view as price did not move above 106.21. Our view remains the same. We continue to look for a decline to 105.10 in the next few days as long as 106.21 is not taken out. MACD is mildly bullish at the moment. Stochastic has a bullish crossover and is heading higher into the overbought zone.

Support 105.85105.50105.15
Resistance 106.20106.65107.00

EUR/USD – Our buy recommendation was filled at 1.1790 last night when price reached a low of 1.1783. However, there was no rally and price is hovering around 1.1800. MACD is still bearish but Stochastic is rising from the oversold zone. 20EMA is still bearish and pointing lower. Our view remains unchanged. We recommend moving stop higher to 1.1775 and lower profit target to 1.1870.

Support 1.17801.17501.1710
Resistance 1.18201.18601.1895

GBP/USD – Price had rallied higher to 1.3148 yesterday but declined to make another marginal low at 1.3052. Price is currently sitting on the 20EMA at 1.3090. MACD is flat and neutral and near to the zero line. However Stochastic is still rising and not near to the overbought zone as yet. Stochastic is able to support another price rally to 1.3150. However, a move below 1.3050 is likely to extend the decline to 1.2980.

Support 1.30501.30101.2980
Resistance 1.31001.31651.3205

XAU/USD – Our view remains the same as yesterday. We are bearish and looking for a test of $1911.50 low again. A move below this point would hint of a move to $1883. MACD is still bearish and 20EMA is currently capping price rally at $1938.20. Stochastic has a bearish crossover just above the oversold zone and could be heading lower again. Above $1957 would negate our bearish view.

Support 1924.551911.351898.60
Resistance 1940.201955.801966.05

USD/CAD – Price rose to a high of 1.3238 even as oil price rose. There is a strong resistance zone from 1.3235 to 1.3242 which is likely to repel the price rally and invoke a decline back to 1.3130 in the next couple of days. However both MACD and Stochastic are supportive of a price rally if resistance at 1.3250 is taken out. We prefer the downside for this pair to 1.3130.

Support 1.32051.31701.3130
Resistance 1.32501.32951.3340

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