FX Commentary – US Dollar Weakens On Congressional Progress Of US Stimulus Relief Package.

Market Talk

  • The US dollar was down on Thursday morning in Asia, with investors moving into riskier assets after progress in U.S. stimulus bill negotiation and Brexit talks both boosted risk appetite at the expense of the safe haven US dollar.
  • The US dollar had moved to a session high after the Federal Reserve vowed to keeping pumping cash into the financial market but disappointed investors expecting more purchases of longer-dated bonds and more immediate help as a second wave of COVID-19 cases led to an economic slide.
  • The pound was boosted by the progress in Brexit talks between the U.K. and the EU, rising to $1.3553, a level not seen since May 2018, during the previous session but EC’s President Ursula von der Leyen warned that while the two sides were closer to a deal, success was not guaranteed.
  • The offshore yuan quickly erased an advance after hitting 6.5 per dollar in morning trades, suggesting that the level could be a new line in the sand. The swings followed a similar pattern seen last week, when the offshore yuan briefly breached 6.5 — touching the strongest level in more than two years — and then started to depreciate.
  • Gold prices nudged higher on expectations for more support for the U.S. economy after Congressional negotiators were “closing in on” a $900 billion COVID-19 aid bill, with the tone the most positive it has been in months.

Chart Focus USD/CNH
Key Points

  1. Buy USD/CNH recommendation.
  2. Buy USD/CNH at 6.5100. Stop at 6.4900 and target at 6.5440
  3. A 10% appreciation and signs of a strong bound below 6.50 could be hints that the Chinese central bank cannot tolerate a level below 6.50 for the Yuan.
  4. Price is supported at 6.50 level and momentum indicators are hinting of a price low with divergence warnings.

Fundamental Comments

  1. A quick rebound from below 6.50 could be a hint from the Chinese central bank that this could be the maximum limit for Yuan appreciation.
  2. An almost 10% appreciation in the Yuan could be the maximum limit that the Chinese central bank can tolerate.

Technical Comments

  1. A strong support at 6.50 is likely to provoke a rebound in the USD/CNH
  2. Momentum indicators are hinting of a reversal with divergence.

Key Levels

Support6.49706.48006.4690
Resistance652806.54306.5620

Technical Overview
USD/JPY – Our sell order was filled last night at 103.70 when price reached a high of 103.91. Price has declined to a low of 103.24 this morning and our view remains unchanged. We are looking for a decline to 102.80 in the next couple of days.  Stochastic is in the oversold zone but MACD is hinting of a strong bearish trend. We would recommend shifting stop to cost at 103.70 while keeping profit target unchanged at 102.85.

Support 103.15102.80102.25
Resistance 103.40103.75104.15

EUR/USD – Price reached a high of 1.2234 this morning and we are expecting this rally to continue higher to 1.2315 over the next few days as long as price can stay above 1.2175. MACD is bullish and rising hinting of a bullish price trend ahead. Stochastic is in the overbought zone but 20EMA is also bullish with a steep slope, which is a hint of a strong bullish price trend ahead.

Support 1.22101.21701.2130
Resistance 1.22501.22801.2315

GBP/USD – Price reached a new high at 1.3554 overnight and we think the uptrend is likely to continue towards 1.3620. MACD is bullish and rising but Stochastic is in the overbought zone. However 20EMA is rising with a steep slope, which is a hint of a strong bullish price trend. Market is pricing in a Brexit deal and this can send price higher but negative news could send price lower to 1.3125. Watch out for Brexit news.

Support 1.35151.34751.3435
Resistance 1.35551.36201.3655

XAU/USD – After reaching a high of $1865.50, we saw a price dip to $1844.55 which is close to Fibonacci 50% of the rally. This may have completed the correction and price has moved to a high of $1868.50 this morning. We are expecting price to test $1875-1877 in the next 24 hours and on a longer term basis to $1893 if resistance at $1877 gives way. MACD remains bullish but Stochastic is still in the overbought zone. 20EMA is bullish and is rising with a steep slope, which is a hint of a strong bullish price trend ahead.

Support 1856.551844.601832.15
Resistance 1868.501875.101888.40

EUR/JPY – Price has stayed within a range of 125.75 to 126.75 for the past three weeks. After testing the high earlier in this week, price tested the lower edge of the range yesterday and rebounded. Stochastic is moving higher. MACD and 20EMA are both neutral at the moment. We think price is likely to stay within the range and we see a bounce up to the upper range again in the next few days

Support 126.05125.70125.20
Resistance 126.45126.75127.10

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