FX Commentary – Gold Gains On Expectation Of Loose US Monetary Policy

Market Talk

  • The dollar and the yen both found support on Wednesday as traders adjusted positions ahead of a U.S. Federal Reserve policy meeting later in New York early afternoon. Investors are looking for clues of any shift in its bond-buying program and the Fed’s economic projections, especially where it figures inflation is headed.
  • The pound rose to 1.2925 on the back of Tuesday’s better-than-expected UK job figures, as well as opposition to a bill proposing to break the U.K.’s Brexit treaty with the European Union (EU).
  • The Chinese yuan also hung on to big gains won on Tuesday when better-than-expected economic data reinforced investors’ perception that the world’s second largest economy is leading the global recovery from the COVID-19 pandemic
  • The World Trade Organization found on Tuesday that the United States had breached global trading rules by imposing multi-billion dollar tariffs in President Donald Trump’s trade war with China, a ruling that drew anger from Washington.
  • Gold was up on Wednesday morning in Asia ahead of the U.S. Federal Reserve’s policy decision on expectations the Federal Reserve will maintain its downbeat stance on the U.S. economy as it grapples with the COVID-19 pandemic and keep U.S. interest rates near zero for some time.

Chart Focus AUD/USD
Key Points
1. Buy AUD/USD recommendation
2. Buy AUD/USD at 0.7305. Stop at 0.7265 and target at 0.7390
3. Expectation of loose monetary policy from Fed and perception of a China economic recovery are both likely to weigh on the US dollar and aid the Aussie.
4. Price finding support at the 20EMA and moving higher with MACD bullish are both good signs of a possible price rally ahead.

Fundamental Comments
1. Expectations that the Fed will maintain its downbeat stance on the U.S. economy as it grapples with the COVID-19 pandemic and keep U.S. interest rates near zero for some time will weigh on the US dollar.
2. Perception that the China is leading the global recovery from the COVID-19 pandemic is likely to be good for the Aussie, which is a proxy for China.

Technical Comments
1. Price has found support at the 20EMA and is moving higher and moving above its recent high point.
2. MACD is bullish and is rising which is a hint of a possible price rally ahead.

Key Levels

Support 0.72850.72450.7210
Resistance 0.73250.73550.7395

Technical Overview

USD/JPY – Price moved below 105.70 on Monday and has declined to a low of 105.25 on Wednesday before London opens. Stochastic is in the oversold zone but is about to turn up. MACD is still bearish with both its lines far below the zero line. 20EMA is bearish with a steep slope, which is a hint of a strong bearish trend. Price will need to break below 105.10 for the downtrend to continue. If price is able to rebound from 105.20, we may see a movement into sideways range again. Watch 105.10 for clue to the next direction.

Support 105.20104.70104.45
Resistance 105.50105.80106.25

EUR/USD – For a period of 12 hours last night, price was capped below 1.1900 and has declined to 1.1828 this morning. Price is currently capped by the 20EMA at 1.1855. As MACD is still bearish and could be turning down after approaching the zero line, we may see a decline in the next 24 hours unless price can move above 1.1875. Stochastic is indicating price is likely to rise, in conflict with MACD.

Support 1.18401.17951.1750
Resistance 1.18751.19151.1945

GBP/USD – Our sell recommendation on this pair was stopped out when price reached a high of 1.2925 overnight. Our bearish view remains unchanged. Price has been unable to made more gains and if capped at this resistance zone, price is likely to decline. Stochastic is near to the overbought zone and could have a bearish crossover soon. MACD is also bearish and could be about to turn lower.

Support 1.28651.28101.2760
Resistance 1.29251.29701.3010

XAU/USD – Price moved above $1970 to a high of $1971.90 overnight but this turned out to be a false breakout. Price moved back into the Triangle range but is currently above the 20EMA. Our bullish view remains unchanged. We are still looking for a break and a move to $1992. However both Stochastic and MACD are showing divergence warnings and hinting of a possible price high in place.

Support 1956.401948.401936.95
Resistance 1964.101976.951992.25

USD/CNH – Price has continued its decline and has reached a low of 6.7650 this morning. The decline which started at 6.8600 last week is likely to continue its decline as there are no signs of a reversal as yet. MACD is bearish with both its lines far below the zero line, which is a sign of a strong bearish trend. Stochastic is also in the oversold extreme but is still not showing any signs of a reversal.

Support 6.76456.75106.7260
Resistance 6.77206.78606.8040

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