FX Commentary – Pound Dropped 200 Points But No End In Sight Yet

Market Talk

  • The pound crumbled 200 pips to fall all the way back to the 1.2772 support. The rewriting of the Brexit deal isn’t going over well in the EU and they set an end-of-month deadline on reworking the legislation. Barnier also outlined a laundry list of negotiation priorities that have made no progress.
  • ECB leaves key policy rates unchanged as expected. EUR/USD surged to 1.1917 after ECB President Christine Lagarde insisted the bank does not target the exchange rate. But her subsequent remark that the bank indeed monitors it and its effect on inflation sank the euro back to $1.1825.
  • The risk-sensitive Australian dollar was up as far as $0.7325 before retreating to $0.7263 early in the Asian session. The New Zealand dollar fell to $0.6648 and was under gentle pressure on Friday.
  • The number of Americans filing new claims for unemployment benefits remained high last week, as layoffs and furloughs persisted across industries. U.S. Senate on Thursday killed a Republican bill that would have provided around $300 billion in new coronavirus aid, as Democrats seeking far more funding prevented it from advancing.
  • Gold prices were down on Friday morning in Asia, after rising 1% earlier in the previous session, as the dollar index rebounded on the back of a plunge in US equity market.

Chart Focus NZD/USD
Key Points
1. Buy NZD/USD recommendation
2. Buy NZD/USD at 0.6635. Stop at 0.6295 and target at 0.6730
3. High unemployment claims and failure of a stimulus package through Congress are both weighing on the U.S. dollar
4. Price is supported by the Fibonacci 62% correction point with MACD bullish and hinting of more price upsides.

Fundamental Comments
1. A U.S. stimulus package failed to get passed in Congress, which is likely to weigh on U.S. economic recovery.
2. Unemployment claims remained high last week, as layoffs and furloughs persisted across industries which casts doubt of a rapid U.S. economic recovery from the coronavirus pandemic.

Technical Comments
1. Price was support by the Fibonacci 62% correction point of the 0.6481 to 0.6788 rally, which is a sign of a bullish trend.
2. MACD is bullish and rising which is a hint of more price upsides ahead

Key Levels

Support 0.66350.66000.6565
Resistance 0.66750.67050.6740

Technical Overview

USD/JPY – Price has managed to stay above 105.70 and we have seen a movement to 106.20 this morning. However, immediate trend may be sideways for now. MACD is bullish but is flat along the zero line. Stochastic is still rising after a bullish crossover but Stochastic is in the middle of its range. Price has not reached the overbought level as yet. Watch 105.70 and 106.50 for clues

Support 106.05105.70105.45
Resistance 106.40106.95107.25

EUR/USD – We had recommended bringing stop higher to 1.1750 while keeping profit target at 1.1850 yesterday on our long position recommendation from Wednesday. Last night, profit target was met as price went as high as 1.1915.  Price has declined to 1.1808 but we think this could be the low and price could be heading higher again to 1.1915 over the next few days. A move below 1.1790 would negate our bullish view.

Support 1.17951.17501.1720
Resistance 1.18451.18801.1915

GBP/USD – Price reached a low of 1.2772 overnight and we have seen divergence warnings from both Stochastic and MACD on the 4-hourly chart. This could be a low and we may see a reversal from this low. Stochastic is near to the oversold zone. MACD is still bearish despite the bullish divergence warning. However, 20EMA is still strong bearish. It is possible to see a decline to 1.2735. Only a move above 1.3010 would negate the bearish trend.

Support 1.27701.27351.2685
Resistance 1.28251.28801.2940

XAU/USD – Yesterday, we had a buy call on Gold at 1942.20 which was filled. Our profit target $1961.80 was reached when price reached a high of $1966.25. Price has declined to a low of $1937.05 this morning. The rally over the past 3 days from $1906 looks corrective. If price stays below 1950, we may be heading to test $1906 again over the next few days. Wait for better trading signal.

Support 1937.051927.501912.60
Resistance 1948.751959.801972.45

USD/CAD – Price stayed above 1.3115 overnight and has moved higher to 1.3200. We think there is a chance of another test of the recent high of 1.3258 if price can stay above 1.3115. Price is currently sitting on the 20EMA. If price failed to stay above this 20EMA, it could be the first sign of a decline back to 1.3075. Stochastic is still turning up in the middle of its range. MACD is still bullish.

Support 1.31501.31151.3080
Resistance 1.31901.32251.3260

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