FX Commentary – US Dollar Strengthened On US Treasury Yields Gain

Market Talk

  • The dollar steadied in holiday-thinned trade on Monday after U.S. jobs data showed job growth slowed further in August threatening the U.S. economic recovery from the COVID-19 pandemic, leading to demand for the safe haven U.S. dollar.
  • Report on Friday showed that U.S. employment growth slowed and permanent job losses increased as government funding started running out, raising doubts on the sustainability of the economy’s recovery. However, the unemployment rate fell to 8.4% from 10.2% in July.
  • Broader sentiment on the dollar remains weak after Federal Reserve Chair Jerome Powell reiterated on Friday that the central bank plans to keep U.S. rates lower for a longer period of time. Weakness in the US the dollar at the start of the week had pushed the euro above the key $1.20 level for the first time since 2018.
  • The British pound fell to $1.3253, retreating from 1.3481, its highest level in almost a year on fears over a no-deal Brexit. Amid an EU-UK trade negotiations impasse, the chances of a no-deal Brexit have risen sharply as negotiations have been threatened by Britain’s insistence that it have full autonomy over its state aid plans.
  • Gold fell a fourth straight day on Friday, losing 2% on the week and plumbing to lows near $1,916 in a slide following US job report for August. A jump in the US 10-Year Treasury yields set the stage for a decline in the price of gold.

Chart Focus EUR/AUD
Key Points
1. Buy EUR/AUD recommendation
2. Buy EUR/AUD at 1.6240. Stop at 1.6195 and target at 1.6325
3. Service PMI showed that Euro zone economic is in expansion while Australian economy is still in contraction.
4. Price is supported at by 20EMA with MACD bullish and hinting of a bullish trend ahead.

Fundamental Comments
1. Australia Services PMI for August was less than 50, coming in at 42.5.
2. German Service PMI was 52.5, indicating expansion compared to Australian contraction.

Technical Comments
1. Price is supported by the 20EMA and a previous resistance turned support line.
2. MACD is bullish and is looking to turn up from near the zero line, indicating a possible bullish trend ahead.

Key Levels

Support 1.62251.61801.6135
Resistance 1.62801.63251.6375

Technical Overview
USD/JPY – Our view remains unchanged from Friday. We are expecting price to test 106.90 unless price moves below 105.70. Price had moved to a high of 106.50 but has declined lower. We are expecting the rally to continue towards 106.90 in the next 24 hours. Stochastic is still rising and MACD is still bullish. Both momentum indicators are showing there is potential for a price rally to 106.90.

Support 106.15105.85105.50
Resistance 106.50106.95107.20

EUR/USD – Our sell order was filled at 1.1860 when price reached a high of 1.1865 on Friday. Price had declined to 1.1780 on Friday but had bounced up higher to 1.1850 this morning. Our view remains unchanged. We are looking for price to decline to 1.1765 over the next couple of days. Stochastic is still rising but MACD is bearish. 20EMA is bearish and is pointing lower, hinting of more price declines.

Support 1.18251.17851.1750
Resistance 1.18651.18951.1925

GBP/USD – A bearish Engulfing candlestick has sent price to a low of 1.3175. A rally was capped by the 20EMA and price is again moving towards the low of 1.3175. We think price is likely to decline to 1.3160 as MACD is losing its downward momentum and Stochastic is turning up. However 20EMA is bearish and pointing lower. It will take a move above 1.3330 to change the current bearish stance to a bullish stance.

Support 1.32001.31601.3110
Resistance 1.32401.32951.3330

XAU/USD – From the high of $1992, price has been on a decline and had reached a low of $1916.10 on Friday. This morning, a corrective rally was halted at the 20EMA resistance of $1940. Price is likely to continue its decline to $1902 if it continues to be capped by the 20EMA. Stochastic is rising but MACD is currently bearish with both its lines below the zero line.

Support 1926.601913.301902.55
Resistance 1939.651947.801962.20

USD/CAD – After reaching a low of 1.2993, price managed to recover to 1.3160. This was followed by a decline to 1.3040. We think this is a corrective decline and we are expecting price to move higher to 1.3205 in a 3-wave ABC Fibonacci price pattern. MACD is still bullish but Stochastic is declining. 20EMA is flat and neutral. A move below 1.3040 would negate our bullish view.

Support 1.30901.30451.2995
Resistance 1.31201.31601.3210

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