FX Commentary – US Dollar Recovers From 28-Month Lows

Market Talk

  • The U.S. dollar clung to overnight gains on Thursday, having gained almost 1% overnight from its 28-month low, as investors trimmed bets against the greenback and sold the euro on concerns that the European Central Bank was worried about its recent strength.
  • European Central Bank (ECB) worries about the euro’s recent rise, having rallied from 1.12 to 1.20 since the European Union in July agreed on a rescue package for its members to fight the impact of COVID-19, leading to its decline. 
  • U.S. private employers hired less workers than expected for a second straight month in August, a sign that labour market recovery was slowing as the COVID-19 pandemic drags on, echoing a similar sign from the previous month.
  • China Caixin services PMI for August was 54, slightly down from July’s reading of 54.1 but still indicative of a fourth month of growth. Earlier in the week Caixin manufacturing PMI also post its fourth consecutive month of growth sending the yuan to its strongest in over 15 months.
  • Gold prices edged higher on Thursday after a steep fall in the previous session to $1932.75, even as a weaker U.S. dollar and global economic outlook concerns from rising COVID-19 cases underpinned gold’s appeal.

Chart Focus USD/CNH
Key Points
1. Buy USD/CNH recommendation
2. Buy USD/CNH at 6.8410. Stop at 6.8220 and target at 6.8920.
3. US Treasury gains and a weaker China PMI are aiding the U.S. dollar against the Chinese yuan.
4. Price has established a bullish trend and momentum indicators are hinting of further price upside ahead.

Fundamental Comments
1. US Treasury yields gains are giving strength to the U.S. dollar.
2. China PMI was weaker than the previous month, raising worries of a slowing down of the Chinese economy.

Technical Comments
1. Price has established a higher low and higher high which is a sign of a rising trend
2. Stochastic is rising after a bullish crossover and MACD is also rising after a bullish crossover.

Key Levels

Support 6.83806.81306.8000
Resistance 6.85106.87006.8935

Technical Overview
USD/JPY – Our bearish view could be wrong as price has moved to a high of 106.33, which is above the Fibonacci 62% of the decline from 106.93 to the low of 105.18. MACD has turned bullish and is still rising although the strength does look weak. However, Stochastic is in the overbought zone and has a bearish crossover. 20EMA is bullish and is still rising. Price could be moving to 107.00 –

Support 105.85105.50105.10
Resistance 106.35106.60106.95

EUR/USD – Tuesday night’s high of 1.2015 turned out to 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 and now, 20EMA has turned bearish as well.  Only a move above 1.1880 would negate our bearish view for the next few days.

Support 1.17801.17501.1705
Resistance 1.18101.18501.1880

GBP/USD – Price reached a high of 1.3482 on Tuesday night but the rally may have hit a temporary high. A bearish Engulfing candlestick has sent price lower and the 20EMA support point at 1.3345 was broken and price is likely to test the Fibonacci 62% of the advance from 1.3055 to 1.3482 at 1.3217. MACD and Stochastic are both declining and is likely to continue declining.

Support 1.32651.32151.3160
Resistance 1.33151.33651.3405

XAU/USD – Price broke above $1976.50 to reach a high of 1992.22 Tuesday night. That was followed by a swift decline and currently price is near to $1927.45. MACD could be forming a divergence warning and Stochastic is near to the oversold extreme. However, 20EMA is point lower and has a steep slope, which is a hint of a strong bearish trend ahead. We may be heading towards the previous low of $1902.27

Support 1926.601913.301902.55
Resistance 1937.651952.601970.25

AUD/USD – We had a buy order yesterday which was filled when price dropped to a low of 0.7300. US dollar trend is likely to be strong for today and our position is likely to be in danger. Keep stop at 0.7295 and profit target at 0.7410. Stochastic has a bullish crossover in the oversold zone but MACD is still declining. 20EMA is bearish and pointing downwards.

Support 0.72700.72400.7205
Resistance 0.73150.73400.7375

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