Market Talk
– The safe-haven US dollar, gold and the yen stood tall on Tuesday morning with market sentiment rattled by potential contagion from Evergrande while the Chinese yuan remained near an almost one-month low.
– All eyes are now on whether China Evergrande Group will default on its bond interest repayment, with a deadline for an $83.5 million interest payment on one of its bonds due on Thursday. The yuan weakened as far as 6.4879 on Monday for the first time since Aug. 23 on this worries.
– The Aussie dollar edged up to 0.7270 after RBA released the minutes from its latest policy meeting earlier in the day. The New Zealand dollar sank after the central bank’s assistant governor poured cold water on bets for a 50 basis point rate hike next month.
– The dollar rose to 109.58 yen, trimming some of its overnight losses, but the pair remains near the middle of the trading range of the past 2-1/2 months. The Bank of Japan has its policy meeting on Wednesday, but no change is expected to its massive stimulus programme.
– Gold rose on fears after worries over the solvency of Chinese property group Evergrande sparked a flight to safe-haven assets, but its gains were capped by strength in the US dollar ahead of the U.S. Federal Reserve’s policy meeting.
Chart Focus EUR/USD
Key Points
1. Sell EUR/USD recommendation
2. Sell EUR/USD at 1.1740. Stop at 1.1770 and target at 1.1670.
3. A reduction in risk appetite and interest rate differential are both favouring the safe haven US dollar.
4. Price is capped by a strong resistance and MACD is hinting of a bearish price trend.
Fundamental Comments
1. Risk appetite is low on worries of a potential contagion from Evergrande debt default.
2. Interest rate differential is in the US dollar favour.
Technical Comments
1. Price is likely to be capped by a strong supported turned resistance line and the 20EMA line.
2. MACD remains bearish and is hinting of a strong bearish price trend.
Key Levels
| Support | 1.1700 | 1.1665 | 1.1635 |
| Resistance | 1.1740 | 1.1790 | 1.1845 |
Technical Overview
USD/JPY – Price reached a high of 111.07 on Friday and has declined to 109.31 overnight. Stochastic is near to the oversold zone and MACD is neutral at the moment. 20EMA is bearish at the moment. We think the previous range is likely to persist going forward. For the next couple of day, we think price is likely to move higher to 110.10 again. Below 109.30, price is likely to test 108.70.
| Support | 109.30 | 109.05 | 108.70 |
| Resistance | 109.65 | 109.95 | 110.20 |
XAG/USD – We had a buy call at $22.35 which was filled when price declined to a low of $22.15. Our view remains unchanged. We would recommend shifting stop higher to $22.10 while keeping profit target at $23.10. MACD is close to the zero line but remains bearish at the moment. 20EMA is also flat and neutral at the moment. Stochastic is rising and hinting of a bullish price trend.
| Support | 22.25 | 21.95 | 21.70 |
| Resistance | 22.60 | 22.90 | 23.15 |
GBP/USD – The decline continues and last night we saw price reached a low of 1.3640. This could be the low we are looking for. Stochastic is in the oversold extreme and MACD has a bullish crossover. However, MACD remains in the bearish zone. 20EMA remains bearish. The trend indicators are hinting of a bearish price trend but momentum is hinting of a price correction before the downtrend resumes.
| Support | 1.3640 | 1.3600 | 1.3570 |
| Resistance | 1.3685 | 1.3720 | 1.3760 |
XAU/USD – Price had reached a low of $1741.98 on Monday morning and we have seen a rally to $1765.98 this morning. There is a strong resistance at $1767.35 from last Friday and price will need to move above this resistance to regain its bullish impetus. Else the bearish price trend remains. While Stochastic is rising, MACD has remains bearish. Watch the resistance at $1767.35 for clues to the next direction of the yellow metal.
| Support | 1758.10 | 1742.00 | 1729.20 |
| Resistance | 1767.35 | 1780.20 | 1796.20 |
USD/CNH – Price reached a high of 6.4878 overnight and a decline has sent price lower to 6.4719 We think price is likely to be support by the 20EMA at 6.4770 and from this support, we could see a rally to 6.50 in the next 48 hours unless the Chinese government bailed out Evergrande. Stochastic may be in the overbought zone but both MACD and 20EMA are both hinting of a strong bullish price trend ahead.
| Support | 6.4720 | 6.4600 | 6.4440 |
| Resistance | 6.4880 | 6.5000 | 6.5100 |