FX Commentary – Can The US Dollar Hang On Its Gains?

Market Talk

  • The dollar clung to overnight gains on Thursday morning in Asia, after minutes from last month’s U.S. Federal Reserve meeting gave investors few clues on whether the Fed will adopt a more dovish policy framework in the months ahead.
  • The Fed’s minutes also warned that the path to economic recovery from COVID-19 remains highly uncertain. They also said that the Fed could tweak monetary policy to continue aggressive stimulus measures for much longer than previously forecast amid the uncertainty.
  • U.S.-China tensions continue to mount after the U.S. suspended its extradition treaty, as well as ending reciprocal tax treatment on shipping with Hong Kong over China’s imposition of national security laws in the city.
  • After hitting an 18-month high of $0.7275, the Australian dollar tumbled back below 72 cents and last sat at $0.7186. The euro fell 0.7% overnight to trade back below $1.19. It last sat at $1.1841. The pound was dumped back to $1.3103.
  • Gold was down on Thursday morning in Asia, slipping below the $2,000-mark over a slowly strengthening dollar. U.S Treasury yields rose after minutes released by the U.S. Federal Reserve on Wednesday put paid to the implementation of yield curve controls to keep the cost of borrowing low.

Chart Focus USD/CNH
Key Points
1. Buy USD/CNH recommendation
2. Buy USD/CNH at 6.9165. Stop at 6.8970 and profit target at 6.9485.
3. Rising US Treasury yields as well as Sino-U.S. tensions are both sending investors into safe haven U.S. dollar
4. Price moved off a mini Double Bottom chart pattern with MACD divergence and Stochastic is bullish and rising.

Fundamental Comments
1. U.S.-China tensions increased after the U.S. suspended its extradition treaty and reciprocal tax treatment on shipping with Hong Kong
2. U.S Treasury yields rose after minutes released by the U.S. Federal Reserve, giving strength to the U.S. dollar.

Technical Comments
1. Price has moved off a mini Double Bottom which is a reversal chart pattern.
2. MACD has given a divergence warning while Stochastic is bullish and rising

Key Levels

Support 6.91606.90606.8975
Resistance 6.92956.94506.9530

Technical Overview
EUR/JPY – Yesterday we had raised our stop loss higher to 125.60. Our stop was triggered last night and we are out with a 20 pips profit. Price reached a low of 125.36 but the trend remains unchanged. MACD and Stochastic are both bearish but are not strong, which could be a hint that this decline is a corrective action. We would prefer to wait for further confirmation before joining the bullish trend.

Support 125.30124.95124.65
Resistance 125.70126.15126.45

EUR/USD – Price reached a high of 1.1965 on Tuesday but fell to a low of 1.1830 last night. MACD is bearish and both its lines are far from the zero line, indicating a strong bearish trend. 20EMA is bearish and its slope is steep. 20EMA resistance point at 1.1865 is likely to cap and we see a test of 1.1810 again. Price would need to move above 1.1915 to be bullish again.

Support 1.18301.17901.1750
Resistance 1.18651.19151.1965

GBP/USD – Price reached a high of 1.3267 last night and has declined to 1.3074 this morning. The decline does not seem completed. MACD is still bearish and 20EMA is bearish and its slope is steep, indicating a strong bearish trend. Stochastic is declining and has not reached the oversold extreme as yet. We think price is likely to decline to 1.2985. A move above 1.3185 would negate our bearish view.

Support 1.30701.30201.2985
Resistance 1.31201.31651.3200

XAU/USD – Price had risen to a high of 2015.45 on Tuesday, which was the previous support turned resistance point. This did not negate the bearish scenario and we may see a decline to 1859 again. MACD is still bearish. Stochastic is rising but seems weak. A move below 1919 would hint of a move to 1859. 20EMA point at 1966 is likely to cap the rally for today.

Support 1940.201924.551916.70
Resistance 1955.201966.051983.90

USD/JPY – We had a sell call which was stopped out at 106.10 last night when price rose to 106.21. Unless price goes above 106.45, we viewed this rally as corrective and we are expecting price to decline again to 105.10. Above 106.45, we see price going to 107.05. MACD is still bearish but Stochastic is still rising after climbing out of the oversold zone. 20EMA is flat at the moment and not giving hints.

Support 105.90105.55105.10
Resistance 106.20106.45106.90

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