FX Commentary – Capital Flight To Safety Lifted US Dollar

Market Talk

  • The dollar was up on Tuesday morning in Asia, clinging on to gains from the previous session as COIVD-19 fears and worries over the U.S. Congress’ stimulus impasse plus a plunging equity market drove a heavy selloff in almost all other assets into the US dollar.
  • U.S. President Donald Trump said during a political rally on Monday that his questions about adjusting the dollar’s exchange rate to counter what he referred to as Chinese currency manipulation were rebuffed.
  • U.K. Prime Minister Boris Johnson is due to announce new restrictions on bars and restaurants later in the day, aiming to curb the growing number of COVID-19 cases in the country. The U.K.’s Chief Scientific Adviser Patrick Vallance warned on Monday that without urgent action, the current infection rate could lead up to 50,000 new cases a day by mid-October.
  • The Euro held just above a six-week trough at $1.1766, while sterling was fragile at $1.2818 amid talk of fresh restrictions in Britain as coronavirus cases grow. The Australian dollar last sat at $0.7230, just above a two-week low touched on Monday.
  • Gold was up on Tuesday morning in Asia, after slipping overnight to its lowest level in more than a month, as a broader market sell-off driven by uncertainty over more U.S. fiscal stimulus pressured the precious metal along with a stronger US dollar.

Chart Focus USD/CNH
Key Points
1. Buy USD/CNH recommendation
2. Buy USD/CNH at 6.7800. Stop at 6.7705 and target at 6.8090
3. An increase in US-China tensions and a plunge in global equity market have led to an increase in demand for safe haven US dollar.
4. A strong support zone and bullish MACD are both a hint of more price advances ahead.

Fundamental Comments
1.  A plunge in global equity market has led to an increasing demand for safe haven US dollar.
2. Trump talk about Chinese currency manipulation is likely to increase tension and demand for safe haven US dollar

Technical Comments
1. 20EMA together with a resistance turned support line are both likely to halt price decline.
2. MACD is bullish and is moving higher, hinting of a price advance ahead.

Key Levels

Support 6.78706.77806.7660
Resistance 6.79756.81006.8210

Technical Overview

USD/JPY – The downtrend continues with price making a new low at 103.98 last night but a strong bounce pushed price higher to 104.88 in late New York hours. This morning, we have seen price made a low of 104.45. We think the rally can continue higher to 105.10 in the next couple of days. MACD is still bearish but Stochastic is already rising from the oversold level.

Support 104.40103.95103.45
Resistance 104.85105.20105.55

EUR/USD – Since the low at 1.1736, price has moved higher but the rally to 1.1870 seems laborious and MACD is weak at the moment, staying far below the zero line. Stochastic is not near to the oversold zone. 20EMA is declining and has a steep slope, hinting of a strong bearish trend. If price cannot move above 1.1780 today, we are likely to see another attempt to test the low of 1.1695 again.

Support 1.17301.16951.1650
Resistance 1.17701.18101.1840

GBP/USD – Price only reached a high of 1.2965 before the big plunge, missing our order at 1.2990. Price may have reached a low of 1.2775 but it does not look like the downtrend is completed. We are likely to see another decline from 1.2830 to test the support of 1.2690. MACD is still bearish but Stochastic is near to the oversold zone at the moment. 20EMA is also hinting of a strong bearish trend.

Support 1.27601.27101.2655
Resistance 1.28201.28701.2915

XAU/USD – Gold broke the lower trendline of the Triangle chart pattern last night and declined to a low of $1882. The low was exactly the Fibonacci 127% of the decline from $1992 to $1906. The low was also in the form of a High Wave candlestick price pattern. Stochastic has a divergence warning but MACD is still bearish. 20EMA is bearish and has a steep slope.

Support 1944.651894.901882.40
Resistance 1918.451928.051938.85

AUD/USD – Price is testing the 0.7185 support and if price fails to hold at this support point, it is likely to decline further to 0.7110. Stochastic is declining but has not yet reached the oversold extreme. MACD is bearish and declining as well. 20EMA is bearish with a steep slope. We see a move to 0.7130, which is also the Fibonacci 127% of the decline from 0.7412 to 0.7192.

Support 0.71850.71300.7075
Resistance 0.72200.72550.7290

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