FX Commentary – British Pound Could Face Trouble Ahead After Controversial Bill

Market Talk

The U.S. dollar dipped against riskier currencies on Tuesday as hopes for a COVID-19 vaccine and big corporate deals improved investors’ appetite for riskier currencies such as the yuan and the euro.

The Yuan hit a 16-month high of 6.8053 yuan per dollar on Monday as a series of robust Chinese economic data suggested the economic recovery is gathering pace as demand starts to improve more broadly from the coronavirus crisis.

Hopes for a COVID-19 vaccine gather pace as AstraZeneca resumed British clinical trials of its COVID-19 vaccine, while Pfizer Inc. and BioNTech proposed expanding their Phase 3 COVID-19 vaccine trial

The British pound showed limited reaction after the UK government won an initial Parliamentary vote on its controversial bill to violate the Brexit deal with the EU. Sterling looks vulnerable as the EU warns British PM Johnson’s bill would collapse trade talks and propel the United Kingdom towards a messy Brexit.

Gold jumped to $1967 as the U.S. dollar weakened, while expectations around the U.S. Federal Reserve maintaining its dovish monetary policy this week further boosted the safe haven metal’s allure.

Chart Focus GBP/USD
Key Points
1. Sell GBP/USD recommendation
2. Sell GBP/USD at 1.2880. Stop at 1.2920 and target at 1.2765
3. A controversial bill is likely to end trade talk and lead to a messy Brexit which will weigh on the British pound.
4. Price is capped by the 20EMA resistance and MACD is supporting a price decline with the fast line turning down from the zero line.

Fundamental Comments
1. UK’s controversial bill to violate the Brexit deal with the EU is likely to lead to a collapse of trade talks and propel the UK towards a messy Brexit.
2. Interest rate differential is in the U.S. dollar favour and is likely to weigh on the British pound.

Technical Comments
1. Price is capped by the 20EMA and a previous support turned resistance point.
2. MACD is bearish and the fast line could be turning down from the fast line, hinting of a bearish trend ahead.

Key Levels

Support	1.2845	1.2810	1.2760
Resistance	1.2880	1.2920	1.2970

Technical Overview

USD/JPY – Price moved below 105.70 yesterday to a low of 105.53. There is a consolidation this morning but we think the down move is likely to continue lower to 105.20 in the next few days. However, Stochastic is in the oversold zone and is about to have a bullish crossover. MACD is still bearish but looks weak. 20EMA is bearish with a steep slope, which is a hint of a strong bearish trend.

Support	105.50	105.20	104.70
Resistance	105.80	106.25	106.55

EUR/USD – Our view remains unchanged from the previous week. We are still looking for price to test the recent high of 1.1915 again within the next couple of days. MACD is bullish and rising. 20EMA is bullish and rising. Stochastic is also rising and bullish. All these three indicators are indicating a bullish price trend ahead. It will take a move below 1.1830 to negate our bullish view.

Support	1.1875	1.1845	1.1795
Resistance	1.1915	1.1945	1.1970

NZD/USD – We had a buy call on Friday but this order was not filled at 0.6635 as price only declined to a low of 0.6640. Price has since moved higher to 0.6730, which was our profit target from last Friday’s buy call. Stochastic has reached the overbought zone but MACD is still indicating price can go higher. 20EMA is bullish and is currently supporting price as well. We think price can go higher to 0.6780.

Support	0.6710	0.6680	0.6640
Resistance	0.6740	0.6790	0.6845

XAU/USD – Price managed to move above $1950 which negates our bigger correction and bearish view. If price can stay above $1936, we are likely to see a continuation of the rally towards the recent high of $1992 in the next few days. MACD is bullish and 20EMA is rising. Both of these indicators support our bullish view but Stochastic is close to the overbought extreme, which could limit the topside.

Support	1961.20	1948.40	1936.95
Resistance	1971.60	1980.60	1992.25

AUD/USD – Price moved above last week’s high of 0.7323 and could be about to move higher to the first target at Fibonacci 127% projection of the rally from 0.7190 to 0.7324 at 0.7360. The 161.8% projection point at 0.7400 is also possible. MACD has turned bullish and is rising. Stochastic is also rising. Both momentum indicators are supportive of a price rally. 20EMA has also turned bullish.