FX Commentary – Sharp Decline In US Equity Market Gave Safe Havens Strength

Market Talk

  • The dollar was up on Wednesday morning in Asia, clinging onto gains after U.S. markets saw a second rout in tech stocks in less than a week, spilled over into selling of riskier currencies and giving the dollar a boost.
  • The British pound dropped to a six-week trough of $1.2950 in Asia on Wednesday morning with Britain to set out its blueprint for life outside the EU on Wednesday, publishing legislation a government minister acknowledged would break international law in a “limited way” and which could sour talks and lead to a hard Brexit.
  • USD/CNH edged up to 6.8520 after data showed that China’s Consumer Price Index and Producer Price Index for August rose 2.4% and fell 2% respectively year-on-year. The readings all saw drops from the previous month resulting in a weaker yuan.
  • The Canadian dollar hit a three-week low of 1.3256 against the dollar after a nearly 8% drop in crude oil price. Together with the U.S. equity market sharp decline, safe haven yen and U.S. dollar gained against other currencies.
  • Gold was down on Wednesday morning in Asia after a steep drop as a result of a stronger U.S. dollar but recovered during the previous session. The recovery was sparked by major selloff in stocks and crude oil price, driving investors into safe haven gold.

Chart Focus EUR/USD
Key Points
1. Buy EUR/USD recommendation
2. Buy EUR/USD at 1.1760. Stop at 1.1720 and target at 1.1850
3. The buck’s recent strength may not last while Euro may not be expensive after declining from 1.20 to 1.1760
4. Momentum indicators are warning of a possible low and price is coming into a strong support zone, both are signs of a possible price bottom

Fundamental Comments
1. EUR/USD has declined from 1.2010 to 1.1760 since ECB chief economist Phillip Lane’s comment
2. U.S. dollar recent safe haven’s strength may not last long

Technical Comments
1. Price is currently supported by a strong support zone at 1.1760 to 1.1750
2. Both MACD and Stochastic, on the 4-hourly chart, have given divergence warnings of a possible price low in the process of forming.

Key Levels

Support 1.17501.17101.1685
Resistance 1.17951.18251.1865

Technical Overview

USD/JPY – Our view since last Friday was for this pair to move higher to 106.90. However, while price has not moved below 105.70, yesterday we had warning that our bullish view could be wrong. MACD has turned bearish while both Stochastic and 20EMA are declining. Price is likely to head lower to test the previous low of 105.10. We think price is likely to move below 105.70 today and later to 105.10.

Support 105.70105.45105.10
Resistance 106.05106.50106.95

AUD/USD – Yesterday we had a sell call on this pair. Our profit order was filled this morning when price reached a low of 0.7191. After reaching this low, price has moved higher to 0.7230 but we think price is likely to test the low of 0.7191 or lower again within the next 24 hours to complete the decline. MACD is still bearish although Stochastic is moving higher. 20EMA is bearish with a steep slope.

Support 0.71900.71600.7135
Resistance 0.72300.72600.7295

GBP/USD – We were expecting a possible price bottom around 1.3055 yesterday but price has since moved lower to 1.2950 on news of a new legislation to be announced later today that could lead to a hard Brexit. There is a possibility that price can move lower to 1.2775 as there are no strong supports before this level. MACD is still bullish but the fast line has dipped below the zero line. Stochastic is still moving lower and 20EMA has turned bearish.

Support 1.29101.28601.2810
Resistance 1.29651.30051.3060

XAU/USD – Price reached a low of $1906.30 last night but had bounced higher to $1940.60. The low of $1906 could be a possible bottom as MACD is moving higher and with a bullish divergence warning. Similarly, Stochastic also has a bullish divergence warning and is moving higher as well. Price will need to move above $1941 to confirm the low in place and a move to $1992 again.

Support 1924.301913.301902.55
Resistance 1939.651955.451970.25

USD/CAD – After reaching a low of 1.2993, price managed to recover to 1.3160 last Thursday. This was followed by a decline to 1.3040. From this price low, we saw a 3-wave ABC Fibonacci price pattern which brought price to 1.3256 this morning. MACD is still bullish but Stochastic is near to the overbought extreme. 20EMA has a steep slope, which a hint of a strong bullish trend. We think price may not have reached a high but there could be one more push higher to 1.3305.

Support 1.32251.31901.3160
Resistance 1.32601.33051.3335

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