FX Commentary – U.S. Dollar On Course For 4 Straight Monthly Drop

Market Talk

  • The dollar inched down on Monday morning in Asia, as investors digest Powell’s speech which unveiled the Fed’s new approach to inflation, which has been interpreted to mean low rates for a longer period, keeping the U.S. weak.
  • Reports that Yoshihide Suga, Abe’s Chief Cabinet Secretary, reportedly joined the race to succeed him as Japan’s leader is weighing on the Yen. Yoshihide Suga would be expected to extend the fiscal and monetary stimulus that defined Abe’s term in government which was one of the reasons for yen’s weakness.
  • The yuan inched up to a new seven-month high of 6.8560 after an upbeat reading on China’s manufacturing activity edged back a tick to 51.0 in July, but services jumping a full point to 55.2 in a hopeful sign of reviving consumer demand that augured well for continued Chinese economic recovery.
  • The euro was quoted at $1.1921 early in the Asia session. Sterling last traded at $1.3358, both as a result of the dollar weakness. The NZ dollar was at $0.6740 after Auckland exited lockdown on Monday after the government announced that the COVID-19 outbreak in the city is under control.
  • Weakness in the dollar helped underpin gold at $1,969 an ounce. Given the prospect of U.S. short rates staying super-low for a longer period of time, gold is likely to benefit from this prolong low interest rate trend.

Chart Focus EUR/JPY
Key Points
1. Buy EUR/JPY recommendation
2. Buy EUR/JPY at 125.60. Stop at 125.10 and target at 126.60
3. Uncertainty ahead of the next Japanese leader and a continuation of Abenomics is likely to keep the yen weak.
4. The ability of price to stay above the Fibonacci 62% correction point with momentum indicators bullish are signs of a bullish trend.

Fundamental Comments
1. A continuation of Abenomics via Yoshihide Suga is likely to keep the yen weak.
2. Uncertain times ahead after Abe’s resignation is likely to keep the yen weak

Technical Comments
1. Ability of price to stay above the Fibonacci 62% is a sign of a bullish trend.
2. MACD is bullish and Stochastic turning up from the oversold zone are both signs of a bullish trend.

Key Levels

Support 125.50125.10124.65
Resistance 125.95126.35126.75

Technical Overview
USD/JPY – Price has reached a low of 105.20 on Friday’s night but it is not clear if the down move has ended. There was no divergence from MACD which is still bearish at the moment. Stochastic has reached the oversold zone but 20EMA is strongly bearish. Price will need to move above 105.85 to negate the bearish view and moved into a bullish stance. Above 105.85, price is likely to test 106.70.

Support 105.50105.20104.70
Resistance 105.85106.15106.50

EUR/USD – Price reached a high of 1.1929 on Friday and while we remain bullish for 1.1965, a Shooting Star is hinting of a possible price reversal. Price will need to surpass 1.1930 to negate this bearish candlestick price pattern. MACD is bullish and Stochastic is rising. 20EMA is still bullish and rising.

Support 1.18801.18351.1785
Resistance 1.19301.19701.2000

GBP/USD -Price reached a high of 1.3386 early on Monday’s morning but the high was in the form of a Shooting Star candlestick price pattern. This is a warning of a possible price reversal. Stochastic has a divergence warning but MACD is bullish and there was no divergence warning. 20EMA is also bullish with a steep slope. We are bullish for 1.3420 if price if price stays above 1.3215.

Support 1.33201.32851.3220
Resistance 1.33701.34201.3490

XAU/USD – Price reached a high of $1976.40 on Monday’s early morning. As a result of this morning price high, price may be forming a potential Double Top chart pattern. Confirmation of a Double Top chart pattern is at $1912. We view 20EMA support at $1952 as a support and if this support holds, we see price going up to test the previous high at $2015. Below $1912 would negate our bullish view.

Support 1960.101948.501936.85
Resistance 1976.401986.601996.95

NZD/USD – We had a buy call on this pair on Friday but our order at 0.6650 was not filled as price only reached a low of 0.6670. Price has moved higher 0.6750 and has exceeded our profit target. Trend on the 4-hourly chart is still bullish and strong. MACD is still bullish and moving higher. Stochastic is in the overbought zone but there is still no sign of a reversal. We see price moving higher to 0.6790.

Support 0.66850.66500.6605
Resistance 0.67250.67550.6790

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