FX Commentary – US Dollar Strengthened On US-China Tensions

Market Talk

  • The dollar was up on Tuesday morning in Asia, with moves subdued ahead of Thursday’s European Central Bank (ECB)’s meeting, although ECB’s policy decision is widely expected to remain unchanged. The focus will be on the bank’s inflation forecasts and whether there are concerns over the euro’s strength.
  • U.S. President Trump continued to create uncertainty  in a White House news conference on Monday by raising the concept of decoupling the U.S. and Chinese economies as a solution to the U.S.’ massive trade deficit with China causing the USD/CNH to inch up to 6.8338.
  • Yoshihide Suga, the frontrunner to succeed incumbent Shinzo Abe as prime minister in leadership elections scheduled for the following week, hinted at snap elections but the yen was little change. Data released earlier in the day showed that Japan’s GDP contracted 28.1% year-on-year during the second quarter.
  • Gold was down on Tuesday morning in Asia as the U.S. dollar rose but its fall was lessened by the continuing COVID-19 uncertainty as well as increasing tensions between U.S. and China.
  • U.K. Prime Minister Boris Johnson is reportedly contemplating legislation to override the country’s Brexit withdrawal agreement with the EU. The news triggered an EU warning that there would be no deal if the U.K. went ahead with the move, increasing the prospects of a hard Brexit yet again and sending Sterling lower to 1.3146.

Chart Focus AUD/USD
Key Points
1. Sell AUD/USD recommendation
2. Sell AUD/USD at 0.7295. Stop at 0.7340 and target at 0.7210
3. A weaker Australian job data coupled with increasing Sino-US tensions are both likely to weigh on the Aussie dollar
4. Price has been capped by 20EMA resistance and MACD is bearish and hinting of further price declines.

Fundamental Comments
1. Australia weekly job data were weaker as a result of shutdown in the state of Victoria
2. Increasing Sino-U.S tensions are likely to weigh on the Aussie which is a proxy for the yuan.

Technical Comments
1. Price has been capped by the 20EMA as well as price resistance.
2. MACD is still bearish with both its lines below the zero line

Key Levels

Support 0.72950.72550.7210
Resistance 0.73350.73750.7415

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 106.15. However our view could be in danger as MACD could be about to turn bearish. Stochastic is moving lower from the overbought zone. 20EMA is turning to turn down as well.

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 on Monday. 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 1.17901.17501.1720
Resistance 1.18251.18651.1895

GBP/USD – From the high of 1.3481 last week, price has continued to decline to current 1.3130. We think price is likely to continue to decline to the previous low of 1.3055. Stochastic is already near to the oversold zone. MACD is also showing a loss of momentum and could be turning around. Both indicators are hinting that price is approaching a bottom which could be 1.3055. 20EMA is still bearish.

Support 1.31201.30851.3050
Resistance 1.31751.32251.3270

XAU/USD – From the high of $1992, price has been on a decline and had reached a low of $1916.10 on Friday. So far 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. A move above $1945 would negate our bearish view and call for a test to $1970.

Support 1924.301913.301902.55
Resistance 1939.651955.451970.25

EUR/AUD – We had a buy call on this pair but our stop was triggered this morning when price dropped to 1.6175. Price is likely to continue lower towards the previous low at 1.6135. Stochastic is still moving lower towards the oversold zone. MACD is still bullish at the moment. 20EMA has turned bearish and is now pointing lower.

Support 1.61701.61351.6085
Resistance 1.62251.62801.6325

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