FX Commentary – US Dollar Rallied On Trump’s Cancellation Of Stimulus Talk

Market Talk

The dollar held on to its gains on Wednesday morning in Asia, with investors digesting U.S. President Donald Trump’s shock cancellation of talks on the latest stimulus measures with Democrats, which is likely to increase risk aversion.

Trump’s move also increases the downside risks to the U.S. economy, which was already shaky, but could increase safe harbour flows into assets such as the greenback. Powell warned that the U.S. economy could slip into a downward spiral if COVID-19 is not effectively controlled and called for more economic assistance.

The British pound fell to 1.2863 low as optimism about Britain’s trade negotiations with the European Union failed to shield sterling from the dollar’s advance. The Euro fell to 1.1725 due to a stronger dollar.

The Australian dollar steadied at 0.7106 in early Asian trade after tumbling by more than 1% on Tuesday. Traders fear the Aussie faces more downside risks due to expectations that the Reserve Bank of Australia’s next move is to cut rates.

Gold fell as the US dollar rose after U.S. President Donald Trump called off negotiations with Democratic lawmakers on coronavirus relief legislation until after the election.

Chart Focus GBP/USD
Key Points
1. Sell GBP/USD recommendation
2. Sell GBP/USD at 1.2910. Stop at 1.2945 and target at 1.2840
3. An increase in risk aversion due to cancellation of stimulus talk and increased coronavirus cases, has lead to demand for the safe harbour US dollar
4. Resistance and MACD are both warning of a possible price high and a likely price decline ahead.

Fundamental Comments
1. Trump’s shock cancellation of talks on the latest stimulus measures has increased risk aversion leading to a strong US dollar
2. Rising Coronavirus cases in both U.S. and U.K. are likely to lead to demand for safe harbour like US dollar

Technical Comments
1. Price correction is likely to face stiff resistance at the 20EMA as well as the previous support turned resistance.
2. MACD has a divergence warning of a possible high while Stochastic is declining and hinting of more price decline.

Key Levels

Support	1.2880	1.2845	1.2805
Resistance	1.2915	1.2955	1.3005

Technical Overview

USD/JPY – We saw a test of 105.80 on Monday night but price did not managed to move above this resistance. We are likely to see another test of this high again. A break above this resistance is likely to send price higher to 106.40 but a failure to move above is likely to send price back to 104.90 again and continue the sideways movement. MACD is getting flat and neutral while Stochastic is near to the overbought zone.

Support	105.40	104.90	104.40
Resistance	105.80	106.15	106.55

AUD/USD – We saw a push in price to 0.7205 after RBA’s announcement that has created a potential Double Tops chart pattern. Yesterday we also saw a break of this Double Tops’ neckline. That break has send price lower to 0.7095. This morning we saw a price pullback towards the previous resistance and 20EMA at 0.7150. We do not think price can move above this resistance. Rather we see a decline to 0.7075 after a testing the 20EMA.

Support	0.7115	0.7075	0.7035
Resistance	0.7150	0.7190	0.7230

EUR/USD – Our buy call overnight was stop out on Trump’s cancellation of stimulus talk and price has dropped down to 1.1723. Price is likely to test the overhead resistance at 1.1765 but we do not think price can move above the resistance point. We are looking for a decline to 1.1680 after a test of the resistance in the next couple of day. Stochastic is still declining and hinting of more price decline ahead.

Support	1.1735	1.1695	1.1645
Resistance	1.1770	1.1815	1.1845

XAU/USD – Price moved to a high of $1921.20 last night but broke below the Rising Wedge’s trendline as a result of Trump’s action. The price decline has stopped right at the previous resistance turned support point and has provoked a rally towards the 20EMA resistance point at $1897.65. We see another decline from this resistance point down to $1850 in the next few days as both momentum indicators, MACD and Stochastic are still declining.

Support	1887.05	1872.70	1861.50
Resistance	1897.40	1907.50	1918.50

USD/CNH – Price had reached a low of 6.7074 in holiday thin trading but has recovered to 6.7541 on Trump’s action. MACD is still bearish and the fast line is already turning down near the zero line which is a hint of a price decline ahead. We think price is likely to test the downside at 6.7074 again in the next couple of days. 20EMA will provide the first resistance at 6.7420.