FX Commentary – US Dollar Stronger With Higher Bond Yields

Market Talk

  • The dollar was up on Wednesday morning in Asia, with higher U.S. bond yields and rising hopes of a U.S. economic recovery from COVID-19 supporting the greenback. Uncertainty surrounding the latest U.S. stimulus measures capped the dollar’s gains, with investors looking to see if Congress can reach a consensus for the measures.
  • Aussie fell against the US dollar to 0.7113 on COVID-19 worries as the second largest city of Melbourne is currently under stage 4 COVID-19 restrictions and the country reported the biggest daily rise in infections in three days on Wednesday.
  • Auckland re-entered lockdown as four new cases, New Zealand’s first in 102 days, were reported sending the Kiwis lower to 0.6540 against the US dollar. RBNZ handed down its interest rate policy decision, which followed market expectations and remained unchanged at 0.25%.
  • The British pound came under pressure after Tuesday’s release of labour market data that missed expectations and indicated that UK job losses were at their highest level in more than a decade last quarter.
  • Gold plunged more than 5% on Tuesday as demand for safe-haven fell following positive COVID-19 vaccine news and ongoing hopes for U.S. fiscal stimulus and analysts are warning the correction could continue for a while.

Chart Focus USD/CHF
Key Points
1. Buy USD/CHF recommendation
2. Buy USD/CHF at 0.9180. Stop at 0.9150 and target at 0.9265.
3. An increase in risk appetite due to higher U.S. bond yields and rising hopes of a U.S. economic recovery from COVID-19 are supporting the greenback
4. Price movement out of a V-shaped chart pattern with rising MACD and Stochastic are hints of a price rally ahead.

Fundamental Comments
1. Higher U.S. bond yields and rising hopes of a U.S. economic recovery from COVID-19 are supporting the greenback.
2. An increase in risk appetite is weighing on the safe haven Swiss francs

Technical Comments
1. Price has rebounded from the 20EMA support and moved above a V-shaped price chart pattern; both are indicating a price rally ahead.
2. Both MACD and Stochastic are rising, which is a hint of a price rally ahead.

Key Levels

Support 0.91850.91300.9085
Resistance 0.92200.92650.9310

Technical Overview
USD/JPY – Price moved above 106.45 last night and managed to hold above this level when there was a test to this support. Price is likely to continue its movement higher to 107.20 after moving above 106.70. While Stochastic is near to the overbought extreme, MACD is still bullish and rising. 20EMA is also pointing higher and its slope is steep, which is a hint of a strong bullish trend.

Support 106.45106.15105.75
Resistance 106.90107.20107.55

EUR/USD – Price reached a low of 1.1710 overnight and we think the decline from 1.1915, could have found a bottom. MACD, while bearish, has a bullish crossover and Stochastic also has a bullish crossover. Stochastic is also moving up from the oversold extreme. 20EMA is still pointing lower and is above price. A move above 1.1750 would confirm the low in place and a possible movement to 1.1820.

Support 1.17101.16701.1635
Resistance 1.17451.17851.1820

GBP/USD – A third price decline has managed to hold above the support area of 1.3015. Price is currently moving higher and away from this support zone. If price can move above the 20EMA resistance at 1.3060, it could confirm a temporary low at 1.3015 and a possible movement higher to 1.3130. Stochastic is starting to turn up but MACD is still bearish despite a bullish crossover. We prefer to stay aside.

Support 1.30151.29751.2930
Resistance 1.30551.30901.3130

XAU/USD – Price has a sharp decline yesterday, falling to a low of $1859.55. There were MACD and Stochastic divergence warnings when price reached this low. We think a temporary low is in place and we see a corrective rally of this decline to $1926.90 in the next 48 hours. There is also a 20EMA resistance at $1920 which may cap price rally ahead of the strong resistance at $1926.90.

Support 1894.551880.351859.55
Resistance 1908.701926.901941.05

USD/CAD – We had a buy order which was stop out last night. We lost 40 pips as a result. Price reached a low of 1.3270 last night and has rebounded back above 1.3350. Stochastic has a bullish crossover and is rising at the moment but MACD is flat and near to the zero line. We think 1.3232 on 5 Aug could be a temporary low and price could be heading to 1.3430 again unless 1.3232 gives way.

Support 1.33151.32801.3235
Resistance 1.33551.33951.3430

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