FX Commentary – U.S. Dollar Broadly Lower On Increased Risk Appetite

Market Talk

  • The dollar was down on Wednesday morning, with investors retreating from the US dollar over concerns that Republicans and Democrats are struggling to reach consensus on the next round of U.S. economic stimulus measures to extend unemployment benefits, due to expire at the end of July.
  • Risk appetite has improved greatly this week as progress in developing vaccines for the novel coronavirus reduced the U.S. dollar’s safe-harbour appeal. The Aussie dollar rose to $0.7144, it’s the highest since April 2019.
  • The euro surged to a nearly 19-month high against the dollar at 1.1538 on Tuesday, after EU leaders agreed a historic €750 billion Covid-19 recovery fund for the region and amid renewed hopes for a Covid-19 vaccine.
  • Sterling was helped by the positive news from the EU summit and ahead of fresh Brexit talks starting on Tuesday. The aim of reaching an agreement between Britain and the EU on future ties by October is ambitious but achievable, German Foreign Minister Heiko Maas said on Tuesday.
  • Silver jumped to $22.80, its highest in almost seven years while gold continued its march to $1865 on expectations of more U.S. stimulus that is needed to help the U.S. economy recover from the coronavirus pandemic.

Chart Focus GBP/USD
Key Points
1. Buy GBP/USD recommendation
2. Buy GBP/USD at 1.2670. Stop at 1.2630 and target at 1.2760
3. German Minister Mass gives Sterling a lift but US dollar is weighed down by Congress struggling to agree on a U.S. economic stimulus package.
4. Price uptrend is strong with MACD hinting of a strong bullish trend ahead.

Fundamental Comments
1. German Foreign Minister Heiko Mass said reaching an agreement between Britain and the EU on future ties by October is ambitious but achievable, lifting Sterling higher.
2. US dollar is weighed down by Republicans and Democrats struggling to reach consensus on the next round of U.S. economic stimulus measures.

Technical Comments
1. The downtrend does not seem completed and there could be a pullback before another rally resumes.
2. MACD is bullish with both its lines high above the zero line and rising, indicating a strong bullish trend ahead.

Key Levels

Support 1.27051.26701.2625
Resistance 1.27651.28101.2845

Technical Overview
USD/JPY – Price continues to move within a range of 106.65 to 107.53 and last night’s low of 106.67 was just above the lower boundary of this range. There are still no signs of a price attempt to move below this range. Price is likely to continue within this range again. We would prefer to wait for better trading idea and for price to move out of its range.

Support 106.65106.35105.95
Resistance 107.05107.50107.80

EUR/USD – Price broke above 1.1470 overnight to reach a high of 1.1546. Stochastic is in the overbought zone and MACD is turning down from its extreme level. However 20EMA is showing the trend is bullish and strong. We think a pullback to previous resistance turned support at 1.1470 is likely to halt the decline and call for another rally. A decline below 1.1470 would hint of a top in place and a deeper decline in store.

Support 1.15151.14701.1420
Resistance 1.15551.16001.1625

EUR/AUD – Price did not reach our recommended sell level but had declined overnight to a low at 1.6114. Further downside could be limited with Stochastic in the oversold zone and MACD in its extreme level. However 20EMA is still strongly bearish. A corrective rally could be needed before the downtrend resumes. Resistance at 1.6180 could halt a corrective rally and provoke a decline.

Support 1.61101.60651.6020
Resistance 1.61501.61901.6240

XAU/USD – Price stayed above the 20EMA yesterday and we saw a rally to a new 9-year high at $1865.70 this morning. The rally still looks strong and there are no divergence warnings from either MACD or Stochastic at the moment. Stochastic is in the overbought zone but still looks strong. Both of MACD indicator’s lines are high above the zero line, hinting of a strong trend.

Support 1854.051843.301835.05
Resistance 1865.701877.001884.45

USD/CNH – Price broke below its recent low at 6.9802 and we saw a decline to 6.9614 this morning. Stochastic has reached the oversold extreme and is turning up. MACD is warning with divergence of a possible price low. 20EMA is still bearish. If price can move above 6.9802, it will confirm a low in place and price move higher toward the important 7.00 handle. Below 6.9802, the downtrend continues.

Support 6.96806.96106.9480
Resistance 6.98056.99457.0030

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