FX Commentary – Yen Strengthened On Abe’s Resignation

Market Talk

  • The greenback was down on Friday morning in Asia, giving up some of its earlier gains as the rally from the U.S. Federal Reserve’s new strategy to increase employment, and tolerance for higher inflation that pushed U.S. bond yields higher, wore off.
  • In a speech, Powell delivered an update on the bank’s monetary policy framework review that would allow a more flexible approach to target inflation and allow labour market to run hot as the central bank seeks to adopt policy strategies to ensure a robust economic recovery.
  • Following Powell’s comments, the dollar initially fell sharply against the yen and the euro, but reversed as U.S. 10-year yields rose. Better than expected housing data also help the greenback to regain its strength.
  • The greenback rose to 106.69 against the safe-haven yen, edging near this month’s high of 107.05. Traders in the yen now shift their focus to Japanese Prime Minister Shinzo Abe’s news conference later in the day, amid growing concerns over his health.
  • Gold was up on Friday morning, recovering from to a low of $1912 overnight as U.S. Federal Reserve’s aggressive new monetary policy to achieve a 2% inflation target pushed U.S. 10-year yields rose to a more than 24-month high.

Chart Focus NZD/USD
Key Points
1. Buy NZD/USD recommendation
2. Buy NZD/USD at 0.6650. Stop at 0.6610 and target at 0.6710
3. U.S. bond yields retreat and Fed’s new monetary policies are both likely to weaken the U.S. dollar.
4. Price is supported by a strong support and MACD is bullish and rising.

Fundamental Comments
1. US bond yields retreat after last night rally is weakening the U.S. dollar
2. New Fed’s monetary policy is likely to weaken the U.S. dollar in the longer term.

Technical Comments
1. Price is supported by the previous resistance turned support and 20EMA is bullish.
2. MACD is bullish and rising, hinting of more price upsides.

Key Levels

Support 0.66500.66050.6570
Resistance 0.66900.67150.6755

Technical Overview
EUR/JPY – Price reached our target but we were stopped out last night at 125.15 when price reached a low of 125.12. Price is likely to decline should Abe resign. MACD is still bullish and rising. Stochastic is rising after a bullish crossover. 20EMA is bullish and has a steep slope. If price can hold above 20EMA support at 125.70, there is a good chance we may see the high of 126.76 again.

Support 125.85125.50125.05
Resistance 126.15126.45126.75

EUR/USD – Price rose above 1.1900 but fell to a low of 1.1760 but is now back near 1.1870. Price broke the upper limit as well as the lower limit of its range. MACD is bullish and rising. Stochastic has a bullish crossover and is rising as well. 20EMA has also turned bullish as well. We think price is likely to test the previous high at 1.1965 again over the next few trading days.

Support 1.18501.18101.1780
Resistance 1.19151.19451.1965

GBP/USD -Price reached a high at 1.3284 last night but fell back to 1.3180. Price is starting to climb again and is likely to test the high of 1.3284 again within the next 48 hours. MACD is bullish and rising. Stochastic has declined lower after a bearish crossover in the overbought zone but is still strong. 20EMA is rising and its slope is steep.  A move below 1.3170 would negate our bullish view.

Support 1.32301.31801.3130
Resistance 1.32851.33301.3380

XAU/USD – Price reached a high of $1976.50 last night which was also the Fibonacci 62% of the decline from $2015 to $$1911.35. A fall to $1911.35 was followed by a rally to 1948.55 this morning. We are expecting price to continue its rally higher to $1954 or $1961.45 in the next couple of days. MACD has turned bullish but Stochastic has a bearish crossover and is still on the decline.

Support 1936.851923.251911.35
Resistance 1948.501961.451976.50

USD/JPY – We had a sell call yesterday but our position was stopped out when price spiked higher on Powell’s speech. Price is lower at 106.22 and we are expecting price to move lower to 105.10. There is an announcement by Japanese PM Abe later which may adversely affect price movement. MACD is still bullish but Stochastic is near to the overbought extreme.

Support 106.15105.80105.50
Resistance 106.50106.90107.05

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