FX Commentary – U.S. dollar Is Softer On Expectation Of Powell’s Dovish Speech On Thursday

Market Talk

  • The dollar was flat on Wednesday morning in Asia, gaining back some of its earlier losses on the back of disappointing U.S. data with attention focus on U.S. Federal Reserve Chairman Jerome Powell, and his speech on Thursday for guidance
  • U.S. consumer confidence fell to 84.8, its lowest level since May 2014, with COVID-19 induced high unemployment contributing to the fall. The reading was much lower than forecast of 93 and was also lower than July’s reading of 91.7.
  • The Yuan edged down to 6.9048, which is a 7-month high with markets continuing to monitor U.S-China ties after U.S. and Chinese officials reaffirmed their commitment to the phase one trade deal on Monday, which eased concerns about a diplomatic standoff between the two countries.
  • The British pound inched down to 1.3125 with investors keeping an eye on Brexit trade negotiations between the U.K. and the EU, which have so far seen a lack of progress. The dollar managed to hold onto slim gains against the yen at 106.51 due to a slight rise in U.S. Treasury yields.
  • Gold prices fell for fourth time in five days before paring losses in Tuesday’s after-hours trade as the dollar gave back some strength on expectations of a dovish speech due over the next 48 hours from Federal Reserve Chairman Powell.

Chart Focus EUR/JPY
Key Points
1. Buy EUR/JPY recommendation
2. Buy EUR/JPY at 125.55. Stop at 125.15 and target at 126.45
3. Better German data is aiding the Euro while better US-China relationship is weighing on the safe haven yen.
4. A strong support and bullish MACD are both hints of price likely to move price higher.

Fundamental Comments

1. German’s second quarter GDP was better than initially estimated. German’s IFO data was also better than expected.
2. U.S.-China polite statement after official phone call help to lower risk sentiment and weighs on the safe haven yen.

Technical Comments
1. A strong support zone provided by 20EMA and a previous resistance turned support is likely to halt price decline and provoke a possible rally.
2. MACD has turned bullish and is moving higher, hinting that price could move higher.

Key Levels

Support 6.90506.89256.8640
Resistance 6.91506.92606.9380

Technical Overview
USD/JPY – Price moved above the high of 106.21 last night that triggered a run to high of 106.52. The move above 106.21 negated our bearish view. Price is likely to be supported by the 20EMA at 106.15 for another push to 107. MACD has turned bullish. Stochastic is in the overbought zone. Stochastic has a bearish crossover but is still staying in the overbought extreme zone.

Support 106.25105.90105.50
Resistance 106.60107.00107.30

EUR/USD – We shifted our stop higher to 1.1775 and lowered our profit target to 1.1870 yesterday. Price has not been moving much yesterday and is still around the 1.18 mark. Our view remains unchanged and we are looking for a price move to 1.1880. Stochastic is still declining but MACD is still bullish. 20EMA is flat and neutral at the moment.

Support 1.17801.17501.1710
Resistance 1.18201.18601.1895

GBP/USD – Price broke above a mini Double Bottom chart pattern yesterday but failed to stay above the neckline. However the decline was halted by the 20EMA. Price should make a second attempt to move above the neckline of the Double Top pattern for a push higher to 1.3250 again in the next couple of days. MACD is bearish but not strong. Stochastic is still moving higher and has not reached the oversold extreme as yet.

Support 1.31251.30851.3050
Resistance 1.31701.32101.3265

XAU/USD – Our view remains the same as yesterday. We are bearish and looking for a test of $1911.50 low and currently price is moving towards this important support point. If price were to break below this point, it is likely to move lower to $1888.90. MACD is still bearish and Stochastic is still declining but has not yet reached the oversold extreme. Above $1957 would negate our bearish view.

Support 1911.351898.601888.90
Resistance 1923.251940.201955.80

USD/CNH – Our buy order was filled yesterday at 6.9050 but price is not going higher at the moment. Instead, price has continued to move lower to 6.8970. Our stop is at 6.8925 and we recommend keeping it unchanged. MACD is bearish but not strongly bearish. Stochastic is still moving lower and has not yet reached the oversold extreme as yet. 20EMA is still pointing lower.

Support 6.89256.87906.8640
Resistance 6.90406.91506.9260

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