FX Commentary – COVID-19 Vaccine Offset Rising Cases Keeping US Dollar Weak

Market Talk
– The dollar was mixed on Wednesday as news of a working COVID-19 vaccine seemed to inoculate investors against worry about surging coronavirus infection cases in Europe and the United States.

– Initial optimism about coronavirus vaccine testing pushed the dollar up against the safe-harbour yen and the Swiss franc in the previous day, but this momentum is starting to fade because there are still several obstacles to clear before a vaccine can be distributed.

– The NZ dollar recovered from an early dip to hit its strongest level in more than a year as traders scaled back bets that the central bank would move to negative interest rates. The RBNZ kept interest rates on hold at 0.25% and introduced a new monetary policy tool to encourage more loans by reducing borrowing costs for banks, which matched market expectations.

– The British pound traded to a high of $1.3279, close to a two-month high due to growing optimism that Britain and the European Union will agree a long-sought-after trade deal as the UK seek to leave the European Union at the end of the year.

– Gold was up on Wednesday morning in Asia, paring back losses from the previous session. U.S. COVID-19 stimulus hopes weakened the greenback and ever-rising coronavirus cases also pushed gold up.

Chart Focus EUR/USD
Key Points
1. Buy EUR/USD recommendation
2. Buy EUR/USD at 1.1820. Stop at 1.1775 and target at 1.1915
3. Elimination of US election and COVID-19 risk and likely stimulus relief package are likely to weigh on the US dollar.
4. Price is supported at a strong support zone and momentum indicators are hinting of a price rally ahead.

Fundamental Comments
1. US election risk and COVID-19 risk has been neutralized by Biden’s victory and COVID-19 vaccine and these are likely to result in lesser demand for safe haven US dollar.
2. Stimulus relief package, which is likely to be activated when Biden takes office, is likely to weaken the US dollar

Technical Comments
1. Price is supported by the 20EMA and Fibonacci 50% correction point to keep the bullish price trend intact.
2. MACD and Stochastic are both turning up, hinting of a price rally ahead.

Key Levels


Technical Overview

USD/JPY – Price could be in a consolidation within a Pennant chart pattern at the moment. This is a continuation chart pattern which means price is likely to move higher to test the previous high of 105.75 in the next few days. MACD is bullish and moving higher but Stochastic is in the overbought zone at the moment. 20EMA is pointing up with a steep slope, which is a hint of a strong bullish price trend.

Support 105.10104.70104.40
Resistance 105.45105.85106.10

AUD/USD – Price was again supported by the 20EMA in its consolidation and with Stochastic having a bullish crossover and MACD still bullish, we think price could be heading higher to test the recent high of 0.7340. A movement above 0.7340 is likely to lead price to the next previous high at 0.7410. A move below 0.7250 would confirm the high at 0.7340 and target the next support at 0.7170.

Support 0.72900.72500.7210
Resistance 0.73400.73700.7415

GBP/USD -Price continued its rally higher to reach a high of 1.3279 this morning but there is divergence warning from MACD warning of a possible price high in the making. 20EMA is still bullish but Stochastic is already in the overbought zone. MACD is bullish but has given a divergence warning of a possible price high forming. We think price is likely to move lower to 1.3130 in a consolidation.

Support 1.32351.31851.3130
Resistance 1.32801.33201.3380

XAU/USD – Price suffered a 5% decline on Monday with news of a COVID-19 vaccine. We think the Monday’s low of $1850.10 could be a low and price could be heading higher in a corrective rally to $1894 or 1890 in the next 24 hours. MACD is bearish but Stochastic has a bullish crossover in the oversold zone and could be moving higher. 20EMA is pointing down with a steep slope which is a hint of a strong bearish price trend ahead.

Support 1876.601867.301859.70
Resistance 1890.051907.701920.30

USD/CNH – We had a sell call which was filled at 6.6050 when price reached a high of 6.6253. Our view remains unchanged but we would recommend bringing stop lower to 6.6260 while keeping profit target unchanged at 6.5550. MACD is still bearish and Stochastic is turning down after a bearish crossover. 20EMA continues to cap price rally at 6.6035. We foresee price moving lower in the next few days.

Support 6.57806.56206.5470
Resistance 6.59806.61106.6310

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