FX Commentary – US Dollar Stronger After Fed’s Economic Assessment

Market Talk

  • The dollar was stronger on Thursday morning in Asia, with investors’ sentiment boosted following the U.S. Federal Reserve’s upbeat assessment of the economic recovery and as its increased tolerance for higher inflation, pushes bond yields higher.
  • The Fed pledged to keep rates near zero until the labour market reaches “maximum employment” and inflation is on track to “moderately exceed” the 2% inflation target. The Fed also expects economic growth to improve from the coronavirus-induced drop they projected in June.
  • The Bank of Japan kept its monetary policy steady as it handed down its decision earlier in the day, as well as upgrading its economic outlook slightly and putting aid to further stimulus measures to combat COVID-19.
  • The British pound strengthened after the Tories strike a deal to avoid a revolt within PM Johnson’s party and giving parliament a say over how to use post-Brexit powers. The Bank of England will hand down its policy decision later in the day and is widely expected to introduce further stimulus measures into the COVID-19-hit economy.
  • Spot gold edged down to $1940 as the dollar rose after the Federal Reserve projected interest rate and economic growth to improve from earlier projected level.

Chart Focus NZD/USD
Key Points
1. Sell NZD/USD recommendation
2. Sell NZD at 0.6695. Stop at 0.6730 and target at 0.6560
3. Fed’s upbeat assessment of the US economy has led to higher bond yields and a stronger US dollar
4. Price may be undergoing an A-B-C correction and Stochastic is hinting of a possible price decline

Fundamental Comments
1. Bond yields moved higher as a result of Fed higher inflation tolerance giving strength to the US dollar.
2. U.S. Federal Reserve’s upbeat assessment of the US economic recovery is aiding the US dollar

Technical Comments
1. Price may have reached a high and may be going through at A-B-C correction
2. Stochastic has a bearish crossover and is moving lower.

Key Levels

Support 0.66750.66400.6600
Resistance 0.67100.67600.6790

Technical Overview

USD/JPY – Price broke below 105.10 last night and moved to a low of 104.79. MACD is now bearish and both of its lines are far away from the zero line, which is a hint of a strong bearish trend. Stochastic has a bullish crossover and is moving higher. 20EMA is bearish and has a steep slope. Both MACD and 20EMA are hinting of the same bearish trend and we are also in agreement with the bearish trend.

Support 104.80104.45104.15
Resistance 105.20105.50105.80

EUR/USD – Price declined to a low of 1.1736 following the Fed’s announcement. We may see a price recovery to 1.1795 but the down move is not over as yet and after this correction, price is likely to move below 1.1736 to 1.1680 in the form of a A-B-C price pattern. MACD is bearish and is moving lower. Stochastic is close to the oversold zone. 20EMA is bearish and pointing lower.

Support 1.17351.16951.1645
Resistance 1.17751.18151.1850

GBP/USD – Price may have hit at bottom at 1.2761. Price had moved to a high of 1.3007 last night and the pullback from this high is sitting on the 20EMA. If price stays above the 20EMA, we are likely to see another rally to test the high at 1.3040 again. MACD has turned bullish but Stochastic has a bearish crossover and is moving lower. 20EMA is bullish and pointing higher. A move below 1.2765 would negate our short term bullish correction

Support 1.29101.28701.2840
Resistance 1.29501.30001.3040

XAU/USD – Yesterday our view on Gold was wrong. Price has a failed breakout of the Triangle chart pattern for the second time. Stochastic and MACD are both giving divergence warning of a possible price high. Price has declined to a low of $1936. If price is unable to move above the 20EMA point at $1952.80, it is likely to move lower to the lower edge of the Triangle at $1923.

Support 1936.951924.151912.50
Resistance 1949.501959.151976.95

USD/CAD – Price has moved above an important resistance at 1.3200 and could be on its way to test the previous high at 1.3258. MACD is bullish and moving higher. Stochastic has a bullish crossover earlier and is moving higher. Stochastic has not yet reached the overbought extreme, which means there is room for price to move higher. 20EMA is also pointing higher. Above 1.3258, price is likely to move to 1.3305 which is the Fibonacci 127% of the previous rally.

Support 1.32001.31551.3115
Resistance 1.32551.32951.3325

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