Market Talk
- The dollar was down on Tuesday morning in Asia, with the U.S. Federal Reserve’s new policy framework announced on August 28 fuelling bets that rates in the U.S. will continue to remain low compared to those in other countries, and driving the dollar down to lows not seen in several years.
- Fed Vice-Chair Richard Clarida on Monday expanded on Fed Chairman Jerome Powell’s comments indicating shift in focus to average inflation and higher employment. The framework has triggered a retreat from the dollar, with the Fed now given more scope to keep benchmark rates lower for longer.
- China’s Caixin manufacturing PMI for August increased to 53.1, beating the forecasted 52.6 as well as July’s reading of 52.8. The USD/CNH reached a low of 6.8172 as a result of the good data.
- The Australian dollar held around a two-year high against the greenback after the Reserve Bank of Australia kept cash rate unchanged at 0.25% and policy unchanged but expanded its cheap funding for banks.
- Gold was up on Tuesday morning in Asia, building on its overnight gains as the greenback weakened to its lowest levels in years in the aftermath of U.S. Federal Reserve dovish s policy shift on inflation announced last week by Fed Chair Jerome Powell.
Chart Focus USD/JPY
Key Points
1. Sell USD/JPY recommendation
2. Sell USD/JPY at 105.85. Stop at 106.15 and target at 105.10
3. U.S. Federal Reserve’s new policy framework and better Japanese manufacturing PMI is keeping the U.S. dollar weaker against the yen
4. Price is capped by the Fibonacci 50% correction point with momentum indicators bearish and hinting of more price declines.
Fundamental Comments
1. U.S. Federal Reserve’s new policy framework is likely to lead to low interest rate and a weaker US dollar
2. Japan’s manufacturing PMI saw an increase to 47.2 in August against an expectation of 46.6, leading to a stronger yen
Technical Comments
1. Price was capped by the Fibonacci 50% correction point of the decline from 107.05 to 105.10.
2. MACD is bearish and is turning down while Stochastic is weak with a bearish crossover.
Key Levels
| Support | 105.50 | 105.10 | 104.70 |
| Resistance | 105.85 | 106.15 | 106.50 |
Technical Overview
USD/CHF – Price broke below the 0.90 handle last night and this morning, price is making another attempt to break below 0.8996 low. If price break this low, the decline is likely to continue towards 0.8945. MACD is still bearish and there is no divergence warning of a reversal as yet. However, Stochastic has a bullish crossover in the oversold zone and is rising at the moment. 20EMA is bearish and we favour the downside to 0.8945.
| Support | 0.8990 | 0.8945 | 0.8905 |
| Resistance | 0.9035 | 0.9090 | 0.9135 |
EUR/USD – Price reached a high of 1.1996 on Tuesday’s morning but the rally could continue further. MACD is still rising and bullish and there is no divergence warning given as yet. Stochastic is in the overbought extreme but has not shown sign of turning down. 20EMA is bullish with a steep slope, which is a hint of a strong bullish trend. The previous high of 1.1965 is likely to provide support for a move to 1.2055.
| Support | 1.1965 | 1.1930 | 1.1880 |
| Resistance | 1.1995 | 1.2025 | 1.2055 |
GBP/USD -Price reached a high of 1.3415 on Tuesday’s morning but the rally could continue higher to 1.3490. MACD is still bullish and rising and there is no divergence warning as yet. Stochastic is rising but is in the overbought extreme. 20EMA is bullish and rising. 20EMA’s slope is steep which is hinting of a strong bullish trend. A move below 1.3225 would negate our bullish view.
| Support | 1.3375 | 1.3320 | 1.3275 |
| Resistance | 1.3420 | 1.3485 | 1.3515 |
XAU/USD – Price broke above yesterday high at $1976.76 to reach a high of 1989.60, negating the Double Top chart pattern as well. MACD is bullish and rising. However, MACD’s histogram is getting weaker and hinting of a weakness in the rally. Stochastic is in the overbought extreme as well but 20EMA is rising with a steep slope. 20EMA is hinting of a strong bullish trend. Price could continue to move higher to the previous high at $2015.
| Support | 1976.40 | 1964.95 | 1953.95 |
| Resistance | 1989.60 | 1999.60 | 2015.15 |
EUR/JPY – Our buy order was not filled yesterday as price did not reach our buy level. Price has reached a high of 126.80 this morning but could continue higher to 127.50. MACD is still rising and bullish and could support price going higher. Stochastic is also rising and has not reached the overbought zone as yet. 20EMA is bullish with a steep slope, hinting of a strong bullish trend. Below 125.40 would negate our bullish view.
| Support | 126.40 | 125.95 | 125.50 |
| Resistance | 126.85 | 127.20 | 127.50 |
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