FX Commentary – COVID-19 Resurgence Is Keeping Investors On Tenterhooks

Market Talk

  • The dollar was mixed on Wednesday morning in Asia, but investors are avoiding big moves and risks ahead of the U.S. presidential election on Nov. 3. A second wave of COVID-19 cases in Europe and the U.S is threatening economic growth and keeping investors on tenterhooks.
  • The US dollar received an additional blow after Trump admitted that it was unlikely that Congress would pass the latest stimulus measures before the election.
  • The Aussie gains were capped by data showing that Australia’s CPI rose 1.6% quarter-on-quarter during the previous quarter, higher than forecasts. The RBA is also tipped to announce lower interest rates and increased government debt purchases after its next meeting on Nov. 3.
  • Investors are keeping an eye on the negotiations for a last-hour Brexit trade deal between the U.K. and the European Union, with the pound likely to be supported by increased hopes of a deal being reached between the two parties.
  • Gold stayed in the green lane for a third straight day on Tuesday and above the key $1,900 level as Covid-19 caseloads continued to dominate headlines, keeping risk appetite on a tight leash. The yellow metal also gained ground against the dollar as a haven, helping its push higher.

Chart Focus NZD/USD
Key Points
1. Sell NZD/USD recommendation
2. Sell NZD/USD at 0.6715. Stop at 0.6755 and profit target at 0.6590.
3. Sino-US tensions and rising Covid-19 cases are keeping risk appetite low and favouring the US dollar.
4. Price is approaching a strong resistance zone and momentum indicators are warning of a possible price high.

Fundamental Comments
1. Sino-US tensions have increased with arms sales to Taiwan and are likely to lead to demand for the US dollar.
2. Covid-19 caseloads continued to rise in US and Europe which is keeping risk appetite on a tight leash and favouring the US dollar.

Technical Comments
1. Price is approaching a strong resistance zone provided by the rising trendline and a previous low support turned resistance.
2. Both Stochastic and MACD are showing divergence warnings of a possible price high.

Key Levels


Technical Overview

USD/JPY – Our view remained the same as yesterday. We think for the next couple of days, price is likely to be capped at 105.05 and supported by the previous low at 104.15. After testing the high, price is likely to test the low of 104.15 in the next few days. Price is now close to the low and a break will likely see price decline to 103.65. However, we think price is likely to be supported at this low and we are likely to see another push to 105.00. Stochastic is near to the oversold zone while MACD may show a bullish divergence warning of a possible low.

Support 104.15103.90103.65
Resistance 104.60104.95105.35

EUR/USD – Price moved to a low of 1.1769 overnight, missing our profit order at 1.1765. We would recommend closing the position at current 1.1785 as price might have hit a bottom. Stochastic has a bullish crossover in the oversold zone and MACD is also moving higher although MACD is still in the bearish zone. However, 20EMA is still bearish and has a steep slope hinting of a strong bearish trend.

Support 1.17651.17301.1690
Resistance 1.17901.18251.1860

GBP/USD – We saw a move to 1.3079 yesterday but price was capped by this resistance and fell back to 1.3020. We are likely to see another test of 1.3080 again today as Stochastic has a bullish crossover, hinting a possible rising price trend ahead. MACD also has a bullish crossover in the bullish zone and is also hinting of a bullish price trend ahead. Above 1.3080, we could see 1.3125.

Support 1.30251.29901.2955
Resistance 1.30751.31251.3160

XAU/USD – Our buy call was filled when price fell to a low of $1897.60. Price has moved to a high of $1910.75 on Wednesday morning. Our view remains unchanged. We would recommend moving stop higher to $1902.00 while keeping profit order at $1924.20. MACD is turning up which is a good sign. Stochastic also had a bullish crossover and is moving higher. 20EMA is pointing higher as well.

Support 1904.751890.651882.50
Resistance 1914.401926.101933.05

USD/CAD – Yesterday we saw a decline to 1.3141 after price had tested the high at 1.3224. We had viewed the rally to 1.3224 as a 3-wave movement but the decline had stopped ahead of the Fibonacci 62% correction point. There is a high possibility that we had only seen the first part of a bigger 3-wave correction which could bring price to 1.3265 if price stay above 1.3135.

Support 1.31551.31151.3080
Resistance 1.32051.32401.3275

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