FX Commentary – Strong U.S. ISM Data Reversed U.S. Weak Dollar Trend

Market Talk

The dollar bounced off two-year lows on Wednesday as U.S. manufacturing activity accelerated to a nearly two-year high in August amid a surge in new orders, pointing to a firm manufacturing activity, while the euro retreated from its highest levels since 2018 on profit-taking.

Data published on Tuesday showed U.S. manufacturing activity accelerated to a nearly two-year high in August amid a surge in new orders, with the reading from the Institute for Supply Management at its highest level since November 2018.

The euro benefited from the initial dollar sell-off, as it rose as high as $1.2014 on Tuesday, its highest since May 2018. Germany said its economic contraction this year won’t be as bad as first feared, helping the euro.

The USD/CNH dropped to 6.8161, the strongest level since May 2019, after China’s Caixin manufacturing Purchasing Managers’ Index for August increased to 53.1, marking the sector’s fourth consecutive month of growth and the fastest rate of expansion since January 2011.

Gold prices continued to fall on Wednesday in Asia as the dollar was supported by robust U.S. economic data which restored hopes for a US economic recovery. Gold had reached a high of $1992.22 overnight.

Chart Focus AUD/USD
Key Points
1. Buy AUD/USD recommendation
2. Buy AUD/USD at 0.7330. Stop at 0.7295 and target at 0.7410
3. US Federal Reserve’s policy is likely to keep the US dollar weak while the RBA’s policy is likely to aid the Aussie.
4. A Hammer candlestick pattern is hinting of an end to the decline and a resumption of the uptrend with MACD confirming the candlestick hint.

Fundamental Comments
1. U.S. Federal Reserve’s new policy framework is likely to lead to low interest rate and a weaker US dollar
2. RBA kept its cash rate unchanged at 0.25% and policy unchanged but expanded its cheap funding for banks which should be good for the Aussie dollar

Technical Comments
1. A Hammer candlestick pattern is hinting of an end to the decline and a resumption of the uptrend
2. MACD is bullish and the fast line is turning up from the Zero line.

Key Levels

Support	0.7340	0.7305	0.7270
Resistance	0.7375	0.7415	0.7450

Technical Overview
USD/JPY – We had a sell call but our stop at 106.15 was triggered when price reached a high of 106.15. Our view remains unchanged. We remain bearish on the US dollar and we are looking at a test of 105.10 again over the next couple of days. MACD is still bullish and Stochastic is still rising. 20EMA is bullish but price is likely to be capped by the Fibonacci 50% and price resistance at 106.10.

Support	105.85	105.50	105.10
Resistance	106.15	106.50	106.95

EUR/USD – The rally continued overnight to a high of 1.2014 but price has started to decline. Last night’s high could be a temporary high and there is a possibility that price could decline lower to 1.1715 over the next few days. Both MACD and Stochastic have given divergence warnings, hinting of a possible price high. However, 20EMA is still bullish and rising

Support	1.1880	1.1850	1.1810
Resistance	1.1930	1.1965	1.1995

GBP/USD – Price reached a high of 1.3482 overnight but the rally may have hit a temporary high. A bearish Engulfing candlestick has sent price lower towards the 20EMA support point at 1.3345. While MACD is still bullish, Stochastic is still pointing lower. We may see a deeper pullback to Fibonacci 38% correction point at 1.3310 or the Fibonacci 50% correction point at 1.3265 if support at 1.3345 fails.

Support	1.3345	1.3300	1.3265
Resistance	1.3390	1.3420	1.3470

XAU/USD – Price broke above yesterday high to reach a high of 1992.22 overnight. That was followed by a swift decline and this morning we saw a low of $1958.58. MACD has turned bearish and Stochastic is into the oversold zone. 20EMA is also bearish. We see the decline continuing towards $1950 over the next few days but longer term, we remain bullish for gold.

Support	1958.55	1948.40	1935.40
Resistance	1969.10	1979.50	1989.60

EUR/AUD – Price reached a low of 1.6144 last Friday and over the past 3 days, we have seen price tested the low again on another 2 occasions but on both occasions, price has managed to hold above the support and there was a rally to test the 20EMA. A Triple Bottom price pattern could be forming and a break above 1.6245 would confirm and hint of a move to 1.6340.