FX Commentary – US Dollar Weak On Economic Recovery Optimism

Market Talk

  • The dollar nursed broad losses on Thursday morning and riskier currencies held gains as investors looked forward to a bright recovery from the COVID-19 pandemic, shrugging off diabolical forecasts and rising Sino-U.S. tension along the way.
  • Fed’s April meeting minutes published on Wednesday showed that inflation will be constrained in the near future by weak demand for goods and services and significantly lower oil prices, making sense for the world’s largest economy to hold interest rates at near zero to spur a recovery from Covid-19.
  • The euro hit a peak at $1.0998 against the dollar, its highest in three weeks. The British pound remained under pressure and failed to gain against the US dollar, following inflation data that fuelled more speculation the Bank of England would cut interest rates below zero.
  • The risk-sensitive Australian dollar broke free from two months of range bound moves to hit a ten-week high of $0.6616. The NZ dollar hit a ten-day top of $0.6157 and both seemed poised for further gains.
  • Gold should continue its rally after the Federal Reserve’s latest policy meeting minutes reinforced its promise to hold U.S. interest rates at near zero and to continue providing the economy with cheap money until it is clear of Covid-19.

Chart Focus EUR/USD
Key Points

  1. Sell EUR/USD recommendation
  2. Sell EUR/USD at 1.0960. Stop at 1.1005 and profit target at 1.0875
  3. A 5-day rally with hold cost against the Euro could be in need of a correction.
  4. A Doji Star candlestick pattern and divergence in Stochastic and MACD are warning of a possible price top.

Fundamental Comments

  1. A 5-day rally to a 10-week high is in need of a correction
  2. Interest rate differential is in the US dollar favour

Technical Comments

  1. A Doji Star candlestick price pattern is hinting of a top in place and a potential trend reversal.
  2. Stochastic and MACD are both showing divergence warnings of a possible price top

Key Levels

Support 1.09351.08951.0855
Resistance 1.09651.10001.1050

Technical Overview

USD/JPY – Price was supported at the previous resistance turned support at 107.40 and we could see another push to 108.10 in the next 48 hours. This could be the final rally before a price decline as MACD had shown divergence warning. Stochastic is declining from the overbought zone. If price declined below 106.70, it could be heading lower to 106.00. Wait for better trading idea.

Support 107.60107.25106.80
Resistance 108.10108.40108.80

USD/CAD – Our sell recommendation was not filled yesterday. Price declined to a low of 1.3867 last night but has recovered to 1.3940 this morning. There is a possibility that price may have made a temporary bottom at 1.3867. If price can move above 1.3980, we will have confirmation of a bottom. MACD is still bearish at the moment. Stochastic is rising from the oversold extreme. Watch 1.3980 and 1.3865 for clues to the next direction.

Support 1.39101.38751.3845
Resistance 1.39551.39901.4025

GBP/USD – Price reached a high of 1.2295 on Tuesday and has been declining since that day. Price has dropped below an important support at 1.2220 and we could be heading lower to 1.2145 over the next couple of days. Stochastic has been declining after reaching the overbought extreme 2 days ago. MACD is mixed with both its lines on different side of the zero line. We prefer the short side as long as price is below 1.2220.

Support 1.22201.21751.2120
Resistance 1.22601.22951.2340

AUD/USD – Price rose to a 10-week high at 0.6615 last night but has declined lower to 0.6548 this morning. The high was also accompanied by divergence warnings from both MACD and Stochastic, which is a warning of a possible price high and a potential reversal. If price fails to hold above the 20EMA support at 0.6535, it could be heading lower to 0.6480.

Support 0.65350.65000.6470
Resistance 0.65750.66150.6660

XAU/USD – From the low of $1725.96, price had rallied to a high of $1753.85. This is just above the Fibonacci 62% of the decline from $1764 to $1726. If price is unable to move above $1764, it could mean the correction is not over as yet and a visit to $1715 is likely in the next few days before the rally resumes again. MACD is turning bearish and Stochastic is about to have a bearish crossover, both hinting of more price declines.

Support 1735.201725.901715.50
Resistance 1744.501758.251764.60

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