FX Commentary – US Treasury Yields Depress US Dollar

Market Talk

  • The dollar nursed losses on Friday weighed down by a combination of expectations for even more monetary easing by the Federal Reserve and very low U.S. yields as a plunge in U.S. yields to record lows wiped out the currency’s single greatest attraction for investors – higher interest rates.
  • Bets that the Fed could cut rates again at its upcoming meeting in March continue to pressure U.S. government bond yields as fears over the fallout from the coronavirus spread. Fed fund futures were also pricing in more than 80 basis points of further easing by year end.
  • The Euro was higher against the greenback at 1.1248, surpassing a two month high reached earlier in the week at 1.1211. Sterling gained as expectations waned for an immediate Bank of England rate cut to follow this week’s emergency move by the Fed.
  • USD/CAD was stable after weakening as Bank of Canada governor Poloz offered some hints after cutting interest rate by 50bps that more cuts are still on the table but said it will depend on what happens with the virus.
  • Gold found vigour again Thursday as U.S. authorities raced to fight the spread of the coronavirus in the world’s largest economy, prompting investors to rush into safe havens. Gold continues its rally into Friday morning, reaching a high of $1676.40

Chart Focus USD/CNH
Key Points
1. Sell USD/CNH recommendation
2. Sell USD/CNH at 6.9700. Stop at 6.9880 and target at 6.9340
3. Expectation of lower US interest rate and spread of coronavirus in USA are both likely to weigh on the US dollar.
4. Price could be capped at resistance level. MACD is bearish and both are likely to send price lower.

Fundamental Comments
1. Expectation of lower US interest rate is weighing on the US dollar
2. Coronavirus is on the wane in China but starting to rise in the US, which is likely to weigh on the US dollar

Technical Comments
1. Price faces resistance at trend line and price resistance, which could cap the recovery
2. MACD is bearish and could be turning lower.

Key Levels

Support 6.94806.93806.9260
Resistance 6.96206.97806.9870

Technical Overview

USD/JPY – Price reached a low of 105.83 this morning and the decline does not look like it will end soon. 20EMA is strongly bearish with a steep slope. MACD is starting to warn with divergence. Stochastic is into the oversold extreme. We could be reaching a price bottom soon. The next support lies at 105.40.

Support 105.80105.40104.95
Resistance 106.25106.85107.25

EUR/USD – Price rose to a high of 1.1248 this morning but on the 4-hourly chart, there is a Hanging Man candlestick pattern. This could be a warning of a potential high and a possible reversal in trend. MACD is support this view with a bearish divergence. Stochastic is close to the overbought zone. A reversal could see price dropped back to 1.1095.

Support 1.12101.11751.1145
Resistance 1.12501.12851.1320

GBP/USD – Price reached a high of 1.2968 this morning and our view is the same as yesterday. We are expecting price to proceed higher to 1.2980 or 1.3015 to complete this rally. MACD is still bullish and strong. Stochastic is into the overbought zone but looks strong at the moment. 20EMA is rising with a steep slope. Below 1.2840 would negate our bullish view.

Support 1.29451.29051.2875
Resistance 1.29801.30151.3040

XAU/USD – Our buy call was not filled yesterday but price has already reached our target at 1670. MACD and Stochastic both continue to hint of a strong bullish trend. 20EMA is also hinting of a strong bullish trend with its steep gradient. The next resistance lies at 1689.25.

Support 1667.451657.851647.05
Resistance 1676.151689.251700.00

USD/SGD – After reaching a high of 1.4080, price has been on a decline. The decline has brought price down to 1.3820 and this could be a possible price low. Stochastic is starting to warn with divergence. MACD is also warning with divergence of a possible price low. If price can move 1.3865, price is likely to test the topside at 1.3935.

Support 1.38201.37851.3740
Resistance 1.38651.39001.3940

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