FX Commentary – US Stronger On Rising Bond Yields

Market Talk

  • The dollar rose to a two-week high against major peers on Tuesday, propelled by rising U.S. bond yields and increasing safe-haven demand amid growing fears about a second wave of coronavirus infections, which sent riskier currencies lower.
  • The greenback was buoyed by a steepening U.S. yield curve, as Federal Reserve officials talked down the prospect of negative rates, and as the bond market braces for an immense borrowing spree from the U.S. Treasury.
  • At the same time, progress on plans to re-open economies has been overshadowed by worries about fresh infections of COVID-19 as easing of restrictions in South Korea and Germany were soon met by spikes in new cases there.
  • The US-China trade tensions have escalated. Peter Navarro said on CNBC that China must pay for hurt caused by the virus. Rumblings from China are that a renegotiation of a traded deal is in their best interest
  • After punching higher on Monday, the Aussie retreated and on Tuesday following a report that China had suspended some meat imports from Australian abattoirs in retaliation to PM Morrison’s demand for an independent investigation into the COVID-19 outbreak in China. China had earlier imposed tariffs on Australian barley import.

Chart Focus GBP/USD
Key Points

  1. Sell GBP/USD recommendation
  2. Sell GBP/USD at 1.2375. Stop at 1.2410 and target at 1.2285
  3. Rising US bond yield and fears of a second wave of coronavirus inflection are both keeping the US dollar in demand
  4. Price has broken a support and is its way to the next support at 1.2265 with MACD bearish and hinting of more price declines.

Fundamental Comments

  1. Rising US bond yields are aiding and pushing the US dollar higher
  2. Safe-haven demand amid growing fears of a second ware of coronavirus infection is also helping the US dollar

Technical Comments

  1. Price has broken below a support and is on its way to test the previous low of 1.2265.
  2. MACD is bearish and is still trending lower

Key Levels

Support 1.23051.22651.2245
Resistance 1.23451.23851.2410

Technical Overview

USD/JPY – Price has moved higher than our expectation to a high of 107.76 overnight. The decline to 107.35 looks corrective and we could see another continuation of the rally to test 108.00. MACD is still moving higher and bullish, but Stochastic is in the overbought zone and is moving lower. However, 20EMA is pointing higher and its gradient is steep, which is a hint of a strong bullish trend. We think there would be a continuation to 108.00.

Support 107.35107.00106.65
Resistance 107.75108.05108.35

EUR/USD – We had raised our stop higher to 1.0810 yesterday and this was stop out. We lost 20 pips on this trade. We are expecting a sideway consolidation for today or until there is a breakout of either 1.0880 or 1.0770. Stochastic is still moving lower and has not yet reached the oversold extreme. However, MACD is flat around the zero line and not hinting of any strong trend. 20EMA on the 4-hourly chart is also flat, highlighting a lack of trend direction. Wait for better trading idea.

Support 1.07951.07651.0725
Resistance 1.08301.08501.0880

USD/CAD – Yesterday our call for this pair was wrong. We got stop out for a loss of 35 pips. Price has moved higher to 1.4063 on the back of US-China tension. However MACD is still bearish at the moment. Stochastic is still rising and has not yet reached the overbought zone. There could be more upside potential to 1.4100. The Double Top chart pattern has been negated and we think price would move in a range for the moment. We would prefer stay aside and wait for clearer direction.

Support 1.40101.39701.3935
Resistance 1.40601.41001.4140

XAU/USD – Price range was low yesterday, which is a sign of a price consolidation. A price decline was halted above $1690 after a test of the high at $1702. If price can hold above $1690, price is likely to move higher to test the resistance at $1712. Stochastic is rising on the hourly chart and MACD is also rising. Both MACD and Stochastic have divergence warning of a possible low in place. Stay aside for the moment.

Support 1691.151681.501668.80
Resistance 1704.051713.701728.50

AUD/USD – Price reached a high of 0.6560 on Monday but there was divergence warning of a high from MACD. Price declined as a result to a low of 0.6431 but we do not think this is the end of the correction. We are expecting price to test the low of 0.6370 in the next few days. Stochastic is still declining and has yet to reach the oversold extreme. There could be more downside for this pair as long as price stays below 0.6500

Support 0.64450.64150.6370
Resistance 0.64850.65100.6560

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