FX Commentary – China’s Yuan Strengthened On CSI 300 Index’s New 5-Year High

Market Talk

  • The dollar held steady against most currencies on Monday after a long weekend holiday as investors awaited data expected to show the U.S. services sector stopped contracting, in what would give further hope to an economic recovery from the coronavirus pandemic.
  • The Institute for Supply Management’s index for Non-manufacturing activity due later on Monday is expected to rise to 50.0 in June from 45.4 in the previous month, indicating activity stopped shrinking. The greenback has been locked into narrow trading ranges recently as concerns about resurgence in U.S. coronavirus infections offset growing optimism about the economy.
  • The Aussie was near a two week high ahead of a Reserve Bank of Australia (RBA) policy meeting on Tuesday. Analysts expect rates will stay at 0.25% amid signs Australia’s economic downturn will not be as dire as first feared.
  • The offshore Yuan rose to 7.0473 per dollar on Monday morning,  drawing strength from a jump in Chinese share prices to the highest in five years as investors shrugged off concerns about diplomatic tension between the United States and China.
  • Gold was down in Asia on Monday morning despite the ever-rising number of COVID-19 supporting the safe-haven asset’s recent rally. A steady rise of new coronavirus infections in the United States has encouraged some investors but most market participants remain focused on the growing likelihood that major economies will continue to recover.

Chart Focus EUR/GBP
Key Points
1. Buy EUR/GBP recommendation
2. Buy EUR/GBP at 0.9020. Stop at 0.8980 and profit target at 0.9080.
3. Good Eurozone data is supporting the Euro while the British pound is weighed down by worries of a no trade deal Brexit
4. Price has reversed from a low with Stochastic and MACD both turning higher and hinting of more price upsides.

Fundamental Comments
1. Better than expected Eurozone data is showing a Eurozone economy recovering from COVID-19 pandemic
2. Worries of a no trade deal Brexit is weighing on the British pound

Technical Comments
1. Price made a recent low with MACD divergence warning of a possible low
2. Stochastic is turning up from the oversold extreme

Key Levels

Support 0.90050.89700.8935
Resistance 0.90500.90800.9120

Technical Overview
USD/JPY – Our order from last Thursday was filled when price dropped to a low of 107.32. Price had rallied to a high of 107.77 this morning and our view remains unchanged but would recommend bringing stop higher to 107.25 while keeping target at 108.70. MACD has turned bullish and is rising while Stochastic has been rising, since exiting from the oversold zone. 20EMA has also turned bullish.

Support 107.30106.80106.45
Resistance 107.75108.15108.50

EUR/USD – Price has been trading in a range of 1.1167 to 1.302 for the past 7 trading days. Price is currently close to the range’s high and a break is likely to trigger a move to 1.1350. However, inability to break this resistance is likely to send price back to the low of the range at 1.1167. MACD is bullish and rising. Stochastic is also rising. 20EMA has turned bullish and these factors are supporting a price break higher for 1.1350.

Support 1.12701.12201.1165
Resistance 1.13101.13501.1390

GBP/USD – Our order from Friday was filled at 1.2440 when price dropped to a low of 1.2436. Price has moved higher to 1.2500 this morning and our view remains unchanged. However we would recommend bringing stop higher to 1.2430 while keeping profit target at 1.2560. MACD is bullish and rising but Stochastic is into the overbought extreme. 20EMA is bullish and its gradient is steep.

Support 1.24901.24401.2400
Resistance 1.25301.25901.2640

XAU/USD – Gold has been trading within the range established on Thursday following the NFP announcement. The range of $1757.40 to $1779.30 is likely to stay. Price is close to the top end but Stochastic is also near to the overbought zone. MACD is flat and neutral at the moment and 20EMA is flat as well.  We would prefer to stay aside during this consolidation until there is a breakout of either boundary of the range.

Support 1769.801757.401747.35
Resistance 1779.301788.951800.00

USD/CNH – Price is approaching a previous low support at 7.0260 following a strong showing from the CSI 300 index which has hit a 5-year high. MACD is bearish and turning lower. Stochastic has a bearish crossover and is moving low. 20EMA is bearish and its gradient is steep, which is hinting of a strong bearish trend. We expect price to break its support and head lower to test the $7.00 handle.

Support 7.02607.00006.9890
Resistance 7.04507.06157.0740

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FX Commentary – US Economic Data Keeps US Dollar Strong

Market Talk

Conflicting commentary on the Sino-U.S. trade dispute, better-than-expected Markit PMI data and better Michigan consumer sentiment, gave the dollar a leg up on its peers on Friday after European Union PMI numbers disappointed earlier in the day.

The dollar rallied when U.S. manufacturing surveys beat forecasts. November preliminary Markit PMI data came in at 51.6 against forecast of 51.0. University of Michigan Final consumer sentiment was higher at 96.8 vs forecast of 95.7.

On Saturday, U.S. national security adviser Robert O’Brien said an initial trade agreement with China is still possible by the end of the year, but warned Washington would not turn a blind eye to what happens in Hong Kong. Trump said on Friday night that a deal was “potentially very close”.

Over the weekend, pro-democracy candidates in Hong Kong romped to a landslide and symbolic majority in district council elections. Ongoing riot in the embattled city adds to worries that a Chinese crackdown on anti-government protests in Hong Kong could further complicate the talks.

European Central Bank President Christine Lagarde on Friday called on euro zone governments to strengthen domestic demand after a global trade war brought a decade of export-driven growth to an abrupt end.

Chart Focus GBP/USD
Key Points
1. Sell GBP/USD recommendation
2. Sell GBP/USD at 1.2875. Stop at 1.2915 and target at 1.2800
3. Uncertainty over US-China talk and strong economic data are boosting the US$
4. A Double Top chart pattern and bearish MACD are both hinting of more price declines

Fundamental Comments
1. Uncertainty over US-China trade talk is weighing of risk appetites and riskier currencies
2. Strong US economic data is boosting the US$

Technical Comments
1. Price broke the neckline of a Double Top chart pattern which is a hint of a bearish trend
2. MACD is bearish and hinting of more price downside

Key Levels

Support 1.28351.28001.2770
Resistance 1.28801.29251.2970

Technical Overview

USD/JPY – For 5 consecutive days, price had stayed within the 100 pips range. Last Thursday price tested the lower end of the range but bounced higher. Price is likely to continue its rally to test the high at 109.00. Our view remains unchanged. Unless the range boundary is breached, price is likely to continue within the range from 108.20 to 109.30. Momentum indicators are inconclusive at the moment.

Support 108.50108.25107.90
Resistance 108.85109.05109.30

EUR/AUD – Our sell call from 21 Nov was not filled on Friday night at 1.6200 even as price breached 1.6200, due to the ask price being  just above 1.6200. Price is pulling back to the 20EMA at 1.6250 but MACD is still looking weak at the moment. If price is capped at 1.6250, there could be a final push lower to 1.6180. Bring stop lower to 1.6255 and profit target remains at 1.6200.

Support 1.62101.61651.6130
Resistance 1.62451.62851.6320

EUR/USD – Our sell call was filled at 1.1075 when price reached a high of 1.10845. Price reached a low of 1.1008 but has bounced up to 1.1030. We think the 20EMA resistance 1.1030 and the Fibonacci 38% correction point of the decline are likely to limit the price rally. Lower stop to 1.1055 and profit remains at 1.0990.  MACD is bearish but Stochastic is rising from oversold extreme.

Support 1.09901.09651.0930
Resistance 1.10301.10501.1090

XAU/USD – Price was capped by 1475 and on Friday, moved lower to 1462. This morning, price moved lower to 1457. Our target is 1456 but a break of this support could bring price lower to 1445. Stochastic is turning down from the oversold extreme and MACD is bearish.

Support 1456.551445.501438.20
Resistance 1463.801478.701486.15

EUR/GBP – Price made a higher high on Friday night but Stochastic did not make a higher high compared to the previous highs. This is a bearish warning of a potential price top. We think 0.8600 could be a temporary high and a possible decline to 0.8545 could be on the card. A price move above 0.8610 would negate our bearish view.

Support 0.85650.85450.8520
Resistance 0.85950.86200.8650

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FX Commentary – UK Parliament Decides On Saturday

Market Talk

– The British pound traded near a five-month high against the dollar and the euro after British Prime Minister Boris Johnson and European Union leaders agreed a new deal for Britain to exit the bloc, averting a disorderly exit at the end of Oct 31.

– Johnson still needs to sell this agreement to skeptical lawmakers when parliament sits on Saturday for a meaningful vote. Northern Ireland’s Democratic Unionist Party said it remained opposed to the proposed agreement, making it uncertain if the deal will be able to get passed the U.K. Parliament.

– “Assuming we clear the parliamentary hurdle, the pound has room to rise further because there are a lot of shorts to be unwound,” said Takuya Kanda, general manager of the research department at Gaitame.com Research Institute in Tokyo. “But after that, people will start to question whether this is really good for Britain’s economy, and further gains in sterling could become difficult.”

– Gold rose on Thursday as weak US industrial production data from the United States rekindled fears of an economic slowdown and as concerns surfaced over possible risks to a new Brexit deal.

– China reported 3Q GDP number showing the Chinese economy grew 6.0% from a year ago, which was weaker than market expectation of 6.1%. It was the slowest growth pace in the past 27 years, as trade dispute with the US over the past 15 months weighed on the Chinese economy.

Chart Focus USD/CAD
Key Points
1. Buy USD/CAD recommendation
2. Buy USD/CAD at 1.3135. Stop at 1.3105 and target at 1.3210
3. A poor Canadian job data and interest rate differential are both in the US dollar favour
4. A reversal candlestick pattern coupled with momentum indicators hinting of a low are signs of a possible price rally.

Fundamental Comments
1. Canadian job data reported on Thursday was very poor compared to expectation
2. Interest rate differential is still in the US dollar favour

Technical Comments
1. An inverted Hammer candlestick pattern is hinting of a possible price reversal
2. MACD showed bullish divergence and Stochastic is deep into oversold extreme

Key Levels

Support 1.31301.31001.3065
Resistance 1.31601.31951.3230

Technical Overview

USD/JPY – Our sell call from Wednesday is still pending. Price is down to the 20EMA support at 108.55 and a break will likely see price going lower to 107.95. A move higher to 108.65 will likely see price test the high of 108.95 again

Support 108.45108.15107.95
Resistance 108.70108.95109.60

EUR/USD – We were expecting price to be capped at 1.1105 and a pullback to 1.1040. However price has move above 1.1105 to reach a high of 1.1140. Stochastic is still rising but is in the overbought extreme. MACD is bullish. We are expecting price to be supported at 1.1095 for another rally to 1.1190.

Support 1.10951.10601.1025
Resistance 1.11401.11651.1195

GBP/USD – Price spiked higher to 1.2990 on news of a Brexit deal but has pullback ahead of Saturday meaningful vote in parliament. Price trend will likely be decided by Saturday’s vote. For today, we expected first resistance at 1.2905 with 1.2990 providing the next cap. Support is at 1.2750. We expect price to range from 1.2750 to 1.2990

Support 1.28351.27801.2740
Resistance 1.29051.29651.2990

XAU/USD – Price has stayed with in wide range of 1504 to 1474 in the past 1 week. At the moment, we do not see any clues to a change of this range. MACD is now flat and neutral. Stochastic is near to the overbought zone. 20EMA is also flat.  Wait for better trading idea.

Support 1486.701474.101462.30
Resistance 1495.601504.101516.85

EUR/GBP – We had a buy call yesterday at 0.8670 but our stop was triggered at 0.8635 on news of a Brexit agreement. We are out with a loss of 35 pips. Our view remains unchanged. We see yesterday’s low of 0.8570 as a possible low with price likely to move higher to 0.8660. MACD is still bearish but rising. Stochastic is also rising

Support 0.86250.85950.8570
Resistance 0.86750.87150.8765

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FX Commentary – Brexit Negotiation Continues

Market Talk

– The dollar found support on Thursday after having weakened on lackluster U.S. retail data, while the volatile pound was on edge as Britain and the European Union scrambled to secure a last-minute Brexit deal. CNBC reported that DUP cannot support Brexit deal in its current state send Sterling below 1.28.

– U.S. retail sales for September fell for the first time in seven months, after stagnating in August, painting a gloomy picture of the U.S. economy and making a case for rate cuts. Fed’s policy maker Charles Evan however forecast no more rate cuts for 2019 in a speech on Wednesday.

– Sterling surged above a five-month high overnight on news of a Brexit agreement but DUP leader dismissed it as nonsense. As Thursday summit approaches, there is still no news of an agreement as negotiators worked on it.

– Inflation in the 19-country euro zone has fallen to its lowest rate since November 2016. Low inflation can be a sign of economic weakness and has been a concern for officials at the ECB, whose goal is to have inflation of just below 2%

– Lingering worries about  the substance of the U.S.’s much-hyped “phase-1” deal to de-escalate the trade dispute with China, kept investors’ risk appetite in check, weighing on the Aussie and other trade-exposed currencies. U.S. legislation backing pro-democracy protests in Hong Kong threatened to derail a possible deal.

Chart Focus EUR/GBP
Key Points
1. Buy EUR/GBP recommendation
2. Buy EUR/GBP at 0.8670. Stop at 0.8635 and target at 0.8790
3. Brexit deal could failed without DUP support and a no deal situation could be bad for Sterling
4. Price has broken up from an Inside Day Range with MACD hinting of a possible price low

Fundamental Comments
1. Brexit withdrawal deal could fail if DUP does not support the deal
2. Failure to get a divorce agreement could be bad for Sterling

Technical Comments
1. Price has broken out of an Inside Day range and is moving higher
2. MACD is showing a bullish divergence which is a hint of a possible price low

Key Levels

Support 0.86400.85950.8550
Resistance 0.86900.87250.8775

Technical Overview

USD/JPY – Our sell order was filled last night when price reached a high of 108.82. Our view remains unchanged. We are looking at price going down to 107.95 in the next 48 hours. Both Stochastic and MACD have given bearish divergence warnings of a possible high. Keep stop at 109.05 and profit target at 108.05

Support 108.60108.35107.95
Resistance 108.95109.30109.60

EUR/USD – Yesterday, we had called for a rally to 1.1105 and price has reached a high of 1.1085. Our view remains unchanged. A test of 1.1105 is possible but price could be near to a high. After a test of the topside, we are looking at a price decline back to 1.1040. Stochastic is still rising and MACD is bullish. Momentum indicators have not given a reversal warning as yet.

Support 1.10601.10251.0995
Resistance 1.10951.11151.1155

GBP/USD – Price reached a high of 1.2871 on news of a possible Brexit deal. CNBC reported at 2pm that DUP cannot support the Brexit deal “as thing stand” send Sterling below 1.28. Both Stochastic and MACD have given bearish divergence warning of a possible high. Price will need to break below 1.2710 to be bearish. Stay aside for now.

Support 1.27101.26651.2605
Resistance 1.27851.28251.2870

XAU/USD – Yesterday, we had called for a test to 1474 but price only reached a low of 1477. Price has started to move higher and with DUP not in favour of current Brexit deal, we think price could test the resistance at 1504.  Stochastic is moving higher but MACD is still bearish. Above 1504 could mean an end to the correction process

Support 1486.701474.101462.30
Resistance 1495.601504.101516.85

USD/SGD – Price recent lows around 1.3670 could be a sign of a bottoming process. The decline to this level is also the Fibonacci 62% of the rally from 1.3495 to the high at 1.3940. MACD has given a bullish divergence warning of a possible low and Stochastic is into the oversold extreme. If price can hold above 1.3670, price can go higher to 1.3860 again.

Support 1.36701.36201.3580
Resistance 1.37051.37501.3780

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FX Trading Idea – EUR/GBP Follow Through

Since our recommendation 3 days ago, price has managed to stay our stop loss at 0.8830. Price went to a low of 0.8836 and today, it has finally rallied to 0.8900. MACD i still strong and Stochastic is crossing over. Both momentum indicators are hinting of more upsides. We think price can higher to our target at 0.8920. We would recommend bringing stop loss higher to 0.8860 while keeping profit target unchanged at 0.8920.

Price broke above the sideways trading channel and could be heading higher to 0.8920.

MACD has been showing bullish divergence twice before today’s breakout. MACD has been warning of potential low for some time now. Stochastic has also had a bullish divergence warning. 20EMA is turning up now and all these are supporting a price push towards Fibonacci 161.8% or 200%.

Buy 0.8860 for a price rally to 0.8920 with a stop below 0.8830.