FX Commentary – US Dollar Up On Trump’s COVID-19 Inflection

Market Talk

  • News that Trump had tested positive for COVID-19 sent investors rushing into US dollar as well as safe havens yen, Swiss and gold, saving the US dollar from its worst weekly performance in a month.
  • The dollar had drifted toward posting its softest week in more than a month on Thursday, as revived hopes for a new U.S. stimulus package to boost the world’s biggest economy had investors seeking out riskier currencies.
  • U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin failed on Thursday to bridge what Pelosi described as differences over dollars and values. Analysts view their talks as a last-gasp effort to secure relief ahead of the Nov. 3 election for tens of millions of Americans, which was doomed for failure.
  • Sterling had a bumpy overnight session, bouncing around on conflicting Brexit headlines before ultimately sinking as the European Union began legal proceedings over a British plan to undercut their divorce deal.
  • Gold moved above $1,900 an ounce Friday, returning to the comfort zone of bulls in the yellow metal, as US equity market futures declined on news of Trump’s positive COVID-19 test, sending investors into the safe haven yellow metal.

Chart Focus AUD/JPY
Key Points
1. Sell AUD/JPY recommendation
2. Sell AUD/JPY at 75.40. Stop at 75.85 and target at 74.15
3. Failure to reach a US stimulus package and Trump’s positive COVID-19 test are both likely to send investors into safe haven yen and out of riskier currency Aussie.
4. Price rally is corrective and momentum indicators have hinted of a possible price high

Fundamental Comments
1. Trump’s positive test on COVID-19 has send investors into safe haven yen and away from riskier currencies.
2. Failure to reach a US stimulus package is likely to move capital into safe havens and away from riskier currencies

Technical Comments
1. Price was capped by Fibonacci 50% correction point of the decline from 77.70 to 73.95 is a hint that the current rally is a correction.
2. MACD and Stochastic are both giving divergence warnings, hinting that price may have reached a possible high.

Key Levels

Support 74.9074.6074.10
Resistance 75.4075.9076.40

Technical Overview

USD/JPY – The bearish Engulfing candlestick price pattern has brought price lower to 104.94, aided by news of Trump’s COVID inflection. Price direction will be determined by the action at 104.90. A break will send price lower to 104.40 but inability to break below will likely result in a price rally to 105.50. MACD is bearish and Stochastic has not reached the oversold zone. We prefer a move to 104.40.

Support 104.90104.40104.00
Resistance 105.25105.80106.15

EUR/USD – Price reached a high of 1.1769 overnight and had declined to 1.1695. The high was also accompanied by bearish divergence warnings from both MACD and Stochastic indicators. With Trump’s news, we are likely to see Euro moving down to test the low of 1.1680 again. The bigger trend will be decided by tonight NFP announcement. A break of 1.1680 is likely to send price lower to 1.1612.

Support 1.17251.16801.1645
Resistance 1.17551.17951.1830

GBP/USD – This pair had a volatile session overnight, moving on conflicting news on Brexit. Ultimately, price declined on EU taking legal action against the UK for breaching the terms of its Withdrawal Agreement from the bloc. Stochastic is declining but MACD is still bullish at the moment. MACD also has a bearish divergence warning when price reached a high of 1.2978.

Support 1.28351.28051.2760
Resistance 1.28851.29101.2965

XAU/USD – Price has managed to move higher overnight but not to our target price but lower at $1911. The decline after $1911 has managed to stay above the 20EMA and is likely to move higher on demand for safe havens after Trump’s COVID-19 news. However both MACD and Stochastic are showing divergence on price’s rally and the topside could be limited to $1919.

Support 1897.401889.601875.30
Resistance 1911.801919.601930.05

USD/CAD – Yesterday, our sell call on was filled when price rose above 1.3310 to a high of 1.3321. Price had declined lower to 1.3265 overnight but is higher again this morning on Trump’s COVID-19 news. We would recommend keeping stop at present 1.3350 and bringing profit target up to 1.3265 as a decline in crude oil price is likely to impact the Canadian dollar.

Support 1.32951.32651.3230
Resistance 1.33301.33701.3420

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