FX Commentary – US Dollar Weaken On US Stimulus Optimism

Market Talk

  • The dollar was up on Monday morning in Asia, with negotiations over the latest stimulus measures in the U.S. floundering yet again and the yuan seeing a drop after the Chinese central bank announced measures to curb the currency’s strength earlier in the day.
  • Investors’ hopes rose after President Donald Trump proposed a $1.8 trillion package on Friday, inching closer to the Democrats’ $2.2. trillion proposal. Trump’s offer irked his fellow Republics, many of whom are reluctant to add to a growing debt pile and costing critical support in the Nov. 3 presidential elections.
  • The offshore Chinese yuan fell from a 17-month high at 6.6710 touched on Friday to 6.7170 in the wake of the People’s Bank of China’s decision to lower the requirement ratio for financial institutions when conducting some foreign exchange forwards trading.
  • The British pound edged down to 1.3033 from Friday’s one-month high of 1.3048, ahead of the upcoming European Council meeting on Oct 15 to 16, where the Brexit deal with the U.K. is on the agenda.  Investors were cautiously optimistic about the U.K. and the EU reaching a deal by UK PM Johnson’s self-imposed deadline of Oct. 15.
  • Gold climbed on Monday in Asia as investors turned to the yellow metal as the dollar retreated to a near three-week low as an increased bets for fresh U.S. stimulus pushed investors to gold as a hedge against a perceived rise in inflation.

Chart Focus AUD/USD
Key Points
1. Buy AUD/USD recommendation
2. Buy AUD/USD at 0.7210. Stop at 0.7180 and target at 0.7335
3. Hopes of a US stimulus package and a buoyant equity market have increased risk appetite and reduced demand for safe haven US dollar.
4. Price has broken above a recent high and MACD is also hinting of more price upsides ahead.

Fundamental Comments
1. Hopes of a US stimulus package has increased risk appetite and demand for riskier currency
2. A buoyant equity market has also increased risk appetite and reduce demand for safe haven US dollar.

Technical Comments
1. Price has broken above a recent high and could be on its ways to the next resistance point.
2. MACD is bullish and rising and hinting of more price upsides ahead

Key Levels


Technical Overview

USD/JPY – Price broke below 105.80 on Friday and had a quick decent to 105.38, breaking the bullish trend scenario. We are likely to see price move lower to 104.90 if price stays below the 20EMA resistance point at 105.70 as well as the price resistance point at 105.80. MACD has turned bearish and Stochastic is still declining and has yet to reach the oversold zone, hinting there could be more price downside ahead.

Support 105.40104.95104.40
Resistance 105.80106.15106.55

GBP/USD – Price broke above the previous high of 1.3005 and has moved to a high of 1.3056. There is a resistance zone at 1.3055 and if price can move above this resistance point, it is likely to rally higher to 1.3170. While MACD is bullish and rising and hinting of more price upsides, Stochastic is into the overbought extreme. 20EMA is bullish and rising with a steep slope, which is a hint of a strong bullish trend ahead. Watch out for the overhead resistance at 13055.

Support 1.30051.29651.2905
Resistance 1.30551.31051.3160

EUR/USD – Price has reached a high of 1.1829 on Friday and momentum indicators like MACD and Stochastic are still strong and rising. We think price can continue to move higher to 1.1890 in the next couple of days. 20EMA is bullish and its slope is steep, which is a hint of a strong bullish trend. Only a move below 1.1760 would negate our bullish view at the moment.

Support 1.17951.17651.1735
Resistance 1.18301.18701.1915

XAU/USD – Price has continued to rise and we saw a high this morning at $1933.00. While MACD is still bullish and rising, Stochastic has a bearish crossover in the overbought zone. This is a hint of a price high and a likely price correction to follow. 20EMA is rising with a steep slope which is a hint of a strong bullish trend. We think if price can stay above $1920, we can see $1940 over the next few days. A move below $1902 would negate our bullish view.

Support 1921.201908.101894.10
Resistance 1933.751944.701954.10

NZD/USD – Price only reached a low of 0.6598 on Friday, missing our buy order at 0.6595. Price has moved higher since Friday and we are up to 0.6672.  Stochastic has a bearish crossover in the overbought zone and MACD while bullish is starting to decline from its extreme. We think price may pull back to 0.6640 which is near to the 20EMA support point. This could be a good buying point for another rally to 0.6695 in the next couple of days.

Support 0.66500.66150.6575
Resistance 0.66900.67300.6775

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