FX Commentary – Dollar Weighed Down By Vaccine Optimism

Market Talk
– The dollar was down on Monday morning in Asia, as lingering vaccine optimism and the possibility of further monetary easing by the U.S. Federal Reserve saw investors retreat from the safe-haven assets despite the ever-rising numbers of new cases globally, alongside fresh lockdowns in Europe and tensions in Iran.

– Data released earlier on Monday morning showed that Japanese industrial production grew 3.8% month-on-month in October, slightly lower than the 3.9% growth seen in September, sending the USD/JPY below 104.00

– The yuan saw a sixth consecutive month of gains, soaring some 9% from its lowest point in May, as China’s PMI data came in above expectation, indicating a continuous economic recovery from COVID-19. Non-manufacturing PMI also exceeded expectation.

– The pound had climbed steadily throughout the month to its highest level near 1.3400 since September as investors bet that the U.K. and the European Union would reach consensus on their Brexit deal before the year-end deadline.

– Gold was down on Monday morning in Asia, continuing the decline from Friday night, as investors are looking toward a brighter future with COVID-19 vaccine likely to shore up economic recovery.

Chart Focus AUD/USD
Key Points
1. Sell AUD/USD recommendation
2. Sell AUD/USD at 0.7390. Stop at 7420 and target at 0.7320
3. Increasing coronavirus cases may override optimism and hopes of a COVID-19 vaccine.
4. A Rising Wedge chart pattern and momentum indicators are all hinting of a possible price high and a likely reversal.

Fundamental Comments
1.  Increasing coronavirus cases, with no sign of reversing, may override optimism and hopes of vaccine.
2. The Aussie dollar has been on a rally for 4 months and there are signs of a tired rally and a possible pullback.

Technical Comments
1. A possible Rising Wedge chart pattern is hinting of a price reversal
2. Momentum indicators are also hinting of a possible price high and a possible reversal.

Key Levels


Technical Overview

USD/JPY – This morning, we saw price move below last Friday’s low of 103.90 to a low of 103.84 after the release of Japan’s industrial production data. However, Stochastic is in the oversold zone and MACD is not strong at the moment. MACD is still bearish but there was a divergence warning after this morning price low. We think the downside could be limited to 103.65 and we could see a rally to 104.20 again in the next couple of days.

Support 103.65103.15102.75
Resistance 103.90104.20104.55

EUR/USD – Price has managed to stay above 1.1910 on Friday and has moved higher to 1.1970 this morning. Our view remains the same as last Friday. We are looking for a price move to 1.2010 in the next couple of days. MACD is still bullish and rising but Stochastic is already in the overbought zone. 20EMA has a steep slope, which is a hint of a bullish price trend ahead. A move below 1.1900 would negate our bullish view and call for a test of 1.1795.

Support 1.19401.19001.1865
Resistance 1.19751.20101.2065

GBP/USD – After a high of 1.3397, price has declined to a low of 1.3280 last Friday. The decline seems to unfold in a 3-wave formation. This could be a hint that the next rally is likely to be capped at 1.3350 and another decline below 1.3280 to 1.3230 can be expected. Stochastic and MACD are hinting of limited upside potential ahead. 20EMA is flat at the moment.

Support 1.33101.32751.3235
Resistance 1.33501.34001.3425

XAU/USD -Price has declined to a low of $1764.33 on Friday, which is lower than our forecast. MACD is warning with divergence and Stochastic is near to the oversold extreme. We think the downside is limited. We are looking for a rally to the $1790 to 1800 handle. 20EMA is pointing lower with a steep slope, which is a hint of a strong bearish price trend.

Support 1764.351757.401742.50
Resistance 1778.801789.501799.25

USD/CAD -We had a sell call on this pair last Friday, but price did not reach to our entry price. Instead, price fell from the morning high to a low of 1.2965. Both MACD and Stochastic are warning with divergences, which is a hint we are near to a price low. 20EMA is still bearish and pointing lower with a steep slope. We maintain our previous view where we had expected price to decline to 1.2930.

Support 1.29651.29251.2885
Resistance 1.29951.30251.3070

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