FX Commentary – Rising COVID-19 Cases Led To Demand For US Dollar

Market Talk

  • The dollar held on to gains on Thursday morning in Asia, after gaining overnight over fresh lockdowns implemented in Europe to curb the incessantly rising number of COVID-19 cases hurt the prospects for the region’s fragile economic recovery.
  • Both French President Emmanuel Macron and German Chancellor Angela Merkel ordered fresh lockdowns in their respective countries on Wednesday to curb the second wave of COVID-19 cases hitting the region.
  • Worries grew about lockdown impact on an already fragile European economic recovery with the Euro sliding to a one-week low of $1.1718 overnight. An ECB meeting tonight is expected to resist pressure to unveil new stimulus measures, but will likely pave the way for action in December.
  • With the Nov. 3 US Elections less than a week away as the country also faces an uptick in COVID-19 numbers, investors is already pricing in a Biden’s victory.  Investors are also cautiously betting on a Democrat victory in both the House and Senate chambers of Congress.
  • Gold fell as investors flocked to the dollar in the absence of signs of any imminent U.S. fiscal stimulus measures to ease the economic blow from the COVID-19 pandemic.

Chart Focus EUR/JPY
Key Points
1. Sell EUR/JPY recommendation
2. Sell EUR/JPY at 123.10. Stop at 123.55 and target at 122.20
3. A rising numbers of COVID-19 cases in Europe, leading to lock down in France and Germany is driving investors out of Euro and into safe haven yen.
4. Momentum and trend are both bearish and are likely to bring price lower with it going forward.

Fundamental Comments
1. Coronavirus resurgence in Europe is weighing down the Euro
2. Worries about rising numbers of COVID-19 cases is denting risk appetite and driving investors into safe haven yen.

Technical Comments
1. A pullback in price is likely to be halted by a strong resistance zone provided by the 20EMA and a previous support turned resistance.
2. MACD is bearish and is likely to turn back down again bring price lower with it

Key Levels


Technical Overview

USD/JPY – We view remains the same as the previous day. Yesterday, price tested the low of 104.15 to reach a low of 104.11. Price has rallied higher to 1054.50 and we are expecting price to continue higher towards 105.00 over the next couple of days. We still view this movement as range bound. MACD is showing a possible divergence warning while Stochastic has a bullish crossover and is moving higher from the oversold zone.

Support 104.10103.90103.65
Resistance 104.60104.95105.35

EUR/USD – Against our expectation, price reached a low of 1.1717 overnight. Stochastic has reached the oversold extreme and is recovering higher but MACD is still bearish. 20EMA is also pointing lower. 20EMA slope is steep which hints of a strong bearish price trend. We are expecting a price rally to be capped at 1.1760 or 1.1790 to be followed by another decline to 1.1690

Support 1.17201.16901.1660
Resistance 1.17601.17901.1825

GBP/USD – Price had reached a low of 1.2916 overnight but that was accompanied by divergence warnings from both MACD and Stochastic indicators Price has moved higher to 1.3020 at the time of writing. At this point price is capped by the 20EMA. If price can move above this resistance, we can see a rally to 1.3080. If price is unable to move above 1.3020, we are likely to see a move to 1.2865.

Support 1.29901.29401.2905
Resistance 1.30251.30801.3125

XAU/USD – Price broke below the lower trend line of a Triangle chart pattern yesterday and we could be heading lower to $1848 in the next few days. We are expecting any price rally to be halted by the resistance at $1900 for another test of $1848. Stochastic is near to the oversold zone but MACD is bearish. 20EMA is pointing lower and is hinting of a strong bearish price trend ahead.

Support 1875.901862.501848.00
Resistance 1884.101896.851910.70

NZD/USD – We had a sell call at 0.6715 which was filled when price went to a high of 0.6719. Price has fallen to 0.6627 and we are expecting the decline to continue lower to our target at 0.6590. We would recommend bring stop lower to 0.6670 while keeping profit target unchanged at 0.6590. Stochastic is near to the oversold zone but MACD has turned bearish and is likely to move lower.

Support 0.66250.65900.6550
Resistance 0.66600.66900.6725

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