FX Commentary – Investors Are Betting On A Biden’s Win And Bigger Stimulus Ahead

Market Talk

  • The dollar took stock at the end of a poor week on Friday, having shed about a cent against the euro and suffered its largest weekly drop against the yen in a month, as investors began to wager on a Biden presidency and big U.S. stimulus.
  • Hopes that Congress might pass a stimulus package before the election and confidence that spending would follow, no matter who gets elected, has driven the US dollar lower in anticipation of more government borrowing.
  • The Australian dollar was higher on Friday after PMI data for manufacturing came in a little bit weaker than last month, but still solidly above the 50.0 level at 54.2. However, further gains are likely to be capped by a growing expectation that the RBA will cut rates when it meets in November 2020.
  • Sterling slipped overnight on uncertainty over Brexit outlook, but it is up 1.2% this week thanks to hopes that Britain and the European Union can reach a trade deal before a transition period ends on Dec. 31.
  • Gold’s dazzling three-day rally snapped on Thursday after talks continued to drag on between the White House and rival Democrat lawmakers for a COVID-19 financial relief plan before the U.S. election on 3 November 2020.

Chart Focus GBP/USD
Key Points
1. Buy GBP/USD recommendation.
2. Buy GBP/USD at 1.3035. Stop at 1.2995 and target at 1.3140
3. Optimism of a Brexit deal and belief of a stimulus package are both likely to dent the safe haven demand of the US dollar
4. Price is supported by a strong support zone with MACD hinting of a bullish price trend ahead.

Fundamental Comments
1. Optimism on a Brexit trade deal is likely to benefit the British pound.
2. Belief of a stimulus package ahead regardless of who get elected as president, is likely to dent US dollar safe haven demand

Technical Comments
1. Price is supported by the 20EMA as well as Fibonacci 50% correction point of the rally from 1.2905 to 1.3176
2. MACD is bullish and the fast line could be turning up from the zero line hinting the short term correction could be over.

Key Levels


Technical Overview

USD/JPY – Following the low at 104.34 on Wednesday, we saw a price rally to 104.93, which was capped by the 20EMA. If price stays below 104.95, we are likely to see another price move to 104.35 again in the next 24 hours. Stochastic is climbing from the oversold extreme but looks weak with flat gradient. MACD is still bearish and the fast line could be turning down again before the zero line

Support 104.60104.35104.00
Resistance 104.95105.30105.75

AUD/USD – Despite a good Aussie PMI data, price was unable to move pass the recent high of 0.7136 and a potential Double Top could be forming. Coupled with growing expectation of a RBA rate cut at its meeting next month, price could be heading lower to test the previous low of 0.7020 once it break its current support at 0.7080. Stochastic and MACD could also be forming divergence warnings.

Support 0.70900.70600.7020
Resistance 0.71350.71700.7210

EUR/USD – After reaching a high of 1.1880, price has declined to a low of 1.1786 at the time of this writing. Stochastic is still declining and has not yet reached the oversold zone, which is a hint of more price declines ahead. MACD is also declining but is still in the bullish zone. We may see a decline to 1.1760 but a close below this support could endanger the bullish trend of this pair.

Support 1.17851.17501.1710
Resistance 1.18251.18501.1880

XAU/USD – From a high of $1931.20, price has declined to $1894.50 last night. Our bullish view is still intact as price is still above the rising trendline. Stochastic is about to see a bullish crossover and is hinting of more price upsides ahead. MACD is still in the bullish zone but price is currently below the 20EMA. As long as price stays above $1894.50, we are looking at price going above $1933 next week.

Support 1894.501882.501872.60
Resistance 1907.951920.101931.20

EUR/AUD – We had a buy call on this pair yesterday but we were wrong on its direction. We were stop out for a loss of 40 pips. Stochastic has reached the oversold zone but MACD has just turned bearish and there could be more declines ahead. 20EMA is also pointing lower. The next support level lies at 1.6475 and if price is unable to move above 1.6665, we are likely to head towards the support point.

Support 1.65551.65251.6475
Resistance 1.66101.66651.6715

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