FX Commentary – Gold Rose On Ultra-Loose Monetary Policy

Market Talk

  • The greenback declined for a third day, nursing losses against many currencies on Friday, to its lowest level in more than two years as a contentious U.S. presidential election diminished hopes for large stimulus to support the economy any time soon.
  • Investors are betting that Democrat Joe Biden will become the next president but Republicans will retain control of the Senate, which will make it difficult for the Democrats in the House to pass the larger fiscal spending they have been pushing.
  • Worries about the U.S. economy are growing, which is a reason to expect declines in the dollar to continue into next year, according to some analysts. In addition to the uncertainty about the presidential election, new coronavirus cases are rising to record levels in several states, which could curb U.S. economic activity.
  • FOMC leaves rates and bond buying unchanged and makes virtually no changes to its statement. The Australian dollar fell against the greenback in Asian trading after the country’s central bank said it is prepared to expand bond purchases if needed to support the economy.
  • Gold which is seen as a hedge against inflation in an era of ultra-loose monetary and fiscal policies was firm at $1,949 in Asia after jumping over 2% overnight as investors looked forward to the conclusion of the U.S. election as a precursor to more fiscal stimulus in the world’s largest economy.

Chart Focus EUR/USD
Key Points
1. Buy EUR/USD recommendation
2. Buy EUR/USD at 1.1770. Stop at 1.1730 and target at 1.1870
3. Stimulus deal and rising coronavirus cases in the US are both likely to weaken the US dollar.
4. Price is supported by a strong support zone and MACD is hinting of more price upsides ahead.

Fundamental Comments
1. Post-election investors are looking at a stimulus deal, which is likely to weaken the US dollar, to help the US economy.
2. Rising coronavirus cases in the US are likely to impact the US economy and weigh on the US dollar.

Technical Comments
1. Price is likely to find support at the previous resistance turned support line as well as the Fibonacci 38% correction point and 20EMA line.
2. MACD is bullish and is rising, hinting of a bullish price trend ahead.

Key Levels


Technical Overview

USD/JPY – Price has declined to a low of 103.35 this morning and Stochastic has reached the oversold extreme. However, MACD and 20EMA are both bearish and hinting of a strong bearish trend ahead. We think there is likely to be a price pullback before the decline resumes again. Price should be capped at 104.00 and we should see another decline to 103.00 in the next few days.

Support 103.35102.95102.65
Resistance 103.70104.00104.35

EUR/AUD – Price reached a low of 1.6219 and with Stochastic in the oversold extreme and with a bullish crossover, we think there could be a corrective price rally ahead. MACD has also shown a bullish divergence. 20EMA is still pointing lower with a steep slope which is hinting of a bearish price trend ahead. We think the corrective rally is likely to be capped at 1.6350 and we think there could be another decline to test the low.

Support 1.62451.62151.6170
Resistance 1.62951.63501.6390

GBP/USD -Price broke above 1.3070 overnight and rallied to a high of 1.3156. MACD is still bullish and rising. 20EMA is also pointing higher with a steep slope which is a hint of a strong bullish price trend ahead. Stochastic is also rising and has yet to reach the overbought zone, which is a hint of more price upsides ahead. We are expecting price to move above the resistance at 1.3175 to reach another new high at 1.3250.

Support 1.31101.30601.3025
Resistance 1.31751.32101.3265

XAU/USD – Price broke above $1916 overnight and rallied to just above the Fibonacci 161.8% price projection target at $1952.30. Stochastic has a bearish crossover in the overbought zone and could be heading lower to unwind the overbought condition. However MACD and 20EMA are both hinting of a strong bullish price trend ahead. We think there is likely going to be a pullback back to the Fibonacci 38% correction point at $1918 again before another rally beyond $1971 in the next few days.

Support 1938.351925.801917.65
Resistance 1944.951952.301966.20

AUD/USD – We had a buy call on this pair yesterday but price only reached a low of 0.7164, missing our buy order at 0.7160. Price had moved higher to 0.7276 overnight on a weaker US dollar. While Stochastic is declining from the overbought level, MACD is still bullish and could be turning higher again. 20EMA is rising and providing support at 0.7245. We think price can move higher to 0.7300 if it can stay supported at 0.7245.

Support 0.72500.72200.7185
Resistance 0.72900.73400.7375

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