FX Commentary – Downbeat US Data Led To A Weaker US Dollar

Market Talk

  • The dollar was steady in early Asia trading on Friday after falling overnight as downbeat U.S. data cast a shadow over the US economic outlook, while the Japanese yen stabilized after rising against the greenback and the euro the previous day.
  • A stream of U.S. data showed jobless claims remained elevated at 860,000, while both housing starts and the Philadelphia Fed business index fell. The Fed this week said it expected the U.S. economy to shrink by far less than previously forecast in 2020 and promised to keep rates ultra-low for a prolonged period.
  • The pound recovered from session lows on Thursday as the Bank of England kept rates unchanged and acknowledged the rebound in the economy is ahead of expectations, cooling investor expectations that easing at its next meeting is a foregone conclusion.
  • The yuan has risen more than 6% from lows against the dollar in late May as China’s economy has recovered from the fallout of the coronavirus crisis, although its rapid rise has raised some concerns.
  • Gold was higher on Friday morning climbing to $1952 after an overnight low of $1932.50, a day after the Federal Reserve said U.S. interest rates will likely stay near zero for another three years. 

Chart Focus EUR/JPY
Key Points
1. Sell EUR/JPY recommendation
2. Sell EUR/JPY at 124.40. Stop at 124.85 and target at 123.35
3. BOJ positive assessment of the Japanese economy together with interest rate differential in favour of the yen is likely to keep the Euro weaker against the yen.
4. Price is approaching a strong resistance point with MACD hinting of more price declines ahead.

Fundamental Comments
1. BOJ positive assessment of the Japanese economy is likely to keep the yen strong
2. Interest rate differential is against the Euro dollar

Technical Comments
1. Price is approaching a previous support turned resistance point which is likely to provide a strong resistance together with 20EMA.
2. MACD is bearish while Stochastic is weak. Both are hinting of more price declines ahead.

Key Levels

Support 123.95123.60123.30
Resistance 124.45124.80125.20

Technical Overview

USD/JPY – Price made another new low overnight at 104.41 but MACD is warning with divergence about a possible price low in the making. Stochastic is also rising from the oversold zone after a bullish crossover. Both momentum indicators are warning of a possible price low. Price may push higher to 105.20 as a result but will need to move above this resistance to negate the bearish view.

Support 104.50104.15103.60
Resistance 104.85105.20105.50

EUR/USD – Price declined to a low of 1.1736 following the Fed’s announcement on Thursday morning and we have seen a bound up to 1.1860 currently. The low of 1.1736 was also in the form of a Hammer candlestick price pattern which is also a hint of a possible price low and reversal. Stochastic and MACD are both still rising and price may move higher to 1.1895 over the next 24 hours.

Support 1.18401.17951.1735
Resistance 1.18801.19151.1965

GBP/USD – Price hit at bottom at 1.2761 last Friday and has moved to a high of 1.3007 on Wednesday. Price’s decline was supported at 1.2860 and price has bounced back up again but we do not think price is going to move above 1.3007. Stochastic has already started to turn down. Price will need to move above 1.3007 to continue the uptrend; otherwise we are likely to see a decline back to 1.2860.

Support 1.29501.29101.2870
Resistance 1.29951.30401.3070

XAU/USD – Price is currently consolidating within the Triangle chart pattern. We are likely to see the breakout of the Triangle range soon as price is near to the apex of the chart pattern. The range to watch out for are $1965 on the upside and $1927 on the downside. Stochastic is rising from the oversold zone but MACD is still on the bearish side at the moment. Watch for the breakout of either range.

Support 1949.501936.951924.15
Resistance 1959.151976.951992.15

NZD/USD – Our sell recommendation on this pair was wrong yesterday. We lost 35 pips on this trade. Price has continued on its rally and has now broken above the previous high of 0.6788. MACD is bullish and rising and Stochastic is also rising but is close to the overbought zone. We think price can continue to move higher to 0.6835. A move below 0.6665 would negate our bullish view.

Support 0.67500.67100.6675
Resistance 0.67900.68400.6900

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