FX Commentary – Increasing COVID-19 Cases Lifted Safe Havens

Market Talk
– The dollar was up on Friday morning in Asia, headed towards its best week against the yen since March 2020. Hopes of a COVID-19 vaccine continued to whet investors’ risk appetite but an increasing number of COVID-19 cases in Europe and the U.S., led investors back to the safe haven US dollar.

– A second wave of infections has prompted the re-imposing economy-sapping restrictions in the US to curb the virus, leading to fears that restrictions to curb the record surge in coronavirus cases in both Europe and the U.S. can impact to the pace of the recovery.

– Powell said on Thursday that while progress in developing a coronavirus vaccine was welcome news, the near-term economic risks remain, underscoring the need for additional government stimulus. Top Democrats urged renewed negotiations over a coronavirus aid proposal, but the top Republican rejected their approach, continuing a months-long impasse.

– The Australian dollar and New Zealand dollar nursed losses made with the risk-averse mood, while the pound was sitting near a one-week low after a slew of data, including GDP data, released on Thursday missed forecasts.

– Gold was up on Friday morning in Asia as new daily record highs in U.S. coronavirus cases have brought back to gold a familiar safe haven theme while hopes of more fiscal and monetary stimulus offered support to the safe-haven metal pushing the yellow metal higher. 

Chart Focus AUD/JPY
Key Points
1. Sell AUD/JPY recommendation
2. Sell AUD/JPY at 76.15. Stop at 76.50 and target at 75.15
3. Increasing COVID-19 cases and more bans on Aussie product from China are both likely to weigh on the Aussie dollar.
4. A Double Top chart pattern and momentum indicators are all hinting of more price declines ahead.

Fundamental Comments
1. Increasing COVID-19 cases is sending investors back into safe haven yen.
2. More bans imposed on Australian products from China are likely to weigh on the Aussie dollar as China is Australia biggest exporting market.

Technical Comments
1. A Double Tops chart pattern breakout is hinting of more price declines ahead.
2. MACD and Stochastic are both hinting of more price declines ahead.

Key Levels


Technical Overview

USD/JPY – Price broke out of a Pennant chart pattern on Wednesday and moved to a high of 105.67 which was higher than the previous high of 105.64 on Monday. This may have completed the continuation pattern of the Pennant chart pattern. A move below 104.80 would confirm a Double Tops chart pattern and call for a movement to 104.00. MACD is still bullish and Stochastic is near to the oversold zone. Watch the support line at 104.80 for clue to the next direction.

Support 104.80104.40104.00
Resistance 105.15105.40105.70

EUR/USD – Price managed to hold above the Fibonacci 62% correction point at 1.1725 of the rally from 1.1602 to 1.1919, which keeps the bullish trend intact. As long as price hold above 1.1725, we still can see the high of 1.1919 if price can move above 1.1845. Stochastic is rising but MACD is bearish at the moment. 20EMA is flat and not indicating any trend. We would recommend playing the range from 1.1740 to 1.1840 and go in the direction of a breakout of this range boundary

Support 1.17901.17451.1710
Resistance 1.18251.18601.1895

GBP/USD – Yesterday, we had a sell call at 1.3200 which was filled when price reached a high of 1.3207. Price fell later in the day to 1.3106 and our profit order was filled. We took a profit of 85 pips from this trade. Stochastic and MACD are both turning up from their respective extreme but we expect 20EMA and Fibonacci 50% correction point at 1.3200 to cap the corrective rally.

Support 1.31051.30651.3025
Resistance 1.31551.32051.3245

XAU/USD – Price has been in consolidation since Monday’s big decline. Currently 20EMA resistance at $1880.30 is capping the rally. Stochastic is still rising and has not reached the overbought zone as yet, which is a hint of more price upsides ahead. However, MACD is bearish at the moment. We still think that price should move higher to $1900 to complete the corrective rally as long as support at $1856 holds.

Support 1872.501860.801850.10
Resistance 1884.351894.301907.70

USD/CAD – Price broke above the resistance point at 1.3100 and this price break reached a high of 1.3169 this morning. We are expecting price to continue higher to the next resistance point at 1.3235. Stochastic is into the overbought zone but MACD is now bullish and rising, offering hopes of a possible price rally. 20EMA is rising and with steep slope hinting of a strong bullish price trend ahead.

Support 1.31301.30901.3050
Resistance 1.31801.32351.3275

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