FX Commentary – US Dollar Caught Between Rising COVID-19 Cases Vs COVID-19 Vaccine.

Market Talk
– The dollar halted its slide on Friday after U.S. Treasury Secretary Steven Mnuchin called an end to some of the Federal Reserve’s pandemic lending. This dealt a blow to economic recovery, derailing a risk rally and surprising investors who had counted on central bank support.

– Treasury yields fell the lowest in 10 days at 0.818% as the prospect of a weak fourth economic quarter overcame optimism that vaccines against COVID-19 are close to being rolled out and could return the economy to normal, sending the USD/JPY lower to 103.77.

– The British pound was on the defensive after the Times newspaper reported that European leaders will urge the European Commission to publish no-deal Brexit plans as the year-end deadline approaches.

– The Aussie dollar fell to a low of 0.7275 as reverberations from Australia-China tensions continue a day after China presented Australia with a dossier of 14 disputes issued by the Chinese embassy in Australia.

– Gold slipped as the progress in COVID-19 vaccine development boosted hopes of a faster economic rebound and tempered bets for an immediate U.S. coronavirus relief package, as investors juxtaposed news of vaccine developments for Covid-19 and the relief those could bring with spiking virus cases around the country.

Chart Focus USD/CAD
Key Points
1. Sell USD/CAD recommendation
2. Sell USD/CAD at 1.3110. Stop at 1.3145 and profit target at 1.3000.
3. Rise in crude oil price and COVID-19 vaccine has help to reduce risk and demand for the safe haven US dollar.
4. Price is capped by a strong resistance point with momentum indicators hinting of a bearish price trend ahead.

Fundamental Comments
1. Crude oil price is on the rise which is good for the Canadian dollar.
2. Optimism of a COVID-19 vaccine has offset rising coronavirus cases in the US, helping to reduce risk and demand for safe haven US dollar.

Technical Comments
1. Price was capped by the Fibonacci 50% correction point and 20EMA, both of which are hinting of a bearish price trend ahead.
2. MACD is bearish and could be turning down. Stochastic is likely to have a bearish crossover, hinting of a bearish price trend ahead.

Key Levels


Technical Overview

USD/JPY – The rally last night to 104.21 managed to unwind the low readings in both MACD and Stochastic indicators and has allowed price with more rooms to decline. Price has declined to 103.73 this morning and we are expecting the decline to continue to 103.20 in the next few days. 20EMA remains bearish.  Stochastic is likely to have a bearish crossover and MACD is bearish at the moment.

Support 103.65103.30103.00
Resistance 103.95104.25104.60

We had a sell call on this pair yesterday which was filled at 1.1860. Price declined to a low of 1.1815 overnight but has bounced back to 1.1890. Stochastic is rising and MACD has turned bullish at the moment. This position is likely to be stopped out today as daily bullish momentum looks like continuing for today. Above 1.1895, we are likely to see a test of the previous high at 1.1920

Support 1.18601.18301.1795
Resistance 1.18951.19201.1950

GBP/USD – Price reached the previous high of 1.3310 and has declined to 1.3230 yesterday which was also the edge of the uptrend channel. There was a false break when price fell to 1.3195 but has bounced back higher to 1.3280 again. Stochastic has turned bullish and is rising. MACD is still bullish. Both momentum indicators are hinting of a bullish price trend ahead. A break of 1.3310 is likely to send price higher to 13380.

Support 1.32651.32301.3185
Resistance 1.33101.33501.3380

XAU/USD -Price has not been able to move past an important resistance at $1898 over the past few days. As a result, we were looking for price to head lower to $1850 over the next couple of days. Last night price went to a low of $1852.50 but there is no indication that this is the end of the correction. 20EMA resistance comes in at $1871.75 which could provide us with clue to the next direction.

Support 1860.151850.101839.15
Resistance 1871.751883.351898.90

USD/CNH – After touching a low at 6.5315, price has been on a rally to 6.5908. We think the correction is over and price is likely to resume its downtrend again for 6.5315. Stochastic has a bearish crossover near the overbought zone and is heading lower. MACD is likely to have a bearish crossover and heads lower as well. Only a move above 6.5910 would negate our bearish view.

Support 6.55506.54406.5315
Resistance 6.57256.59106.6065

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