FX Commentary – US Dollar On A Decline As Investors Move Away From Safe Havens

Market Talk

  • The dollar was on the defensive near a one-week low on Thursday, as robust U.S. data and fresh hopes for U.S. fiscal stimulus had investors confident enough about economic recovery prospects to seek out riskier currencies.
  • US jobs figures showed U.S. private employers stepped up hiring harder than forecast last month and that mid-west manufacturing grew faster than expected, also fed in to the positive market sentiment.
  • U.S. Treasury Secretary Steven Mnuchin told reporters talks with House Speaker Nancy Pelosi “made a lot of progress” on long-awaited COVID-19 relief legislation with a compromise amount of $1.5 trillion, adding that an agreement had been reached on direct payments to Americans.
  • Gains in the euro overnight were also muted after European Central Bank President Christine Lagarde hinted of a strategy overhaul and a more accommodative approach to inflation could be possible.
  • Gold tested the $1900 level again overnight, boosted by a weaker dollar but was pulled lower as investor moved out of safe havens as sentiment improved on increased hope of a US stimulus agreement sending price below $1900 for a second time.

Chart Focus USD/CAD
Key Points
1. Sell USD/CAD recommendation
2. Sell USD/CAD at 1.3310. Stop at 1.3350 and target at 1.3230.
3. Improved economic prospects have led to higher crude oil price as well as investors selling safe haven US dollar.
4. A Triple Top chart pattern breakout, coupled with bearish momentum indicators, is a hint of a bearish trend ahead.

Fundamental Comments
1. Economic recovery prospects improved on hopes of a US stimulus package leading investors to sell off safe haven US dollar.
2. Crude oil prices recovered above US$40 on hopes of an economic recovery, aiding the Canadian dollar

Technical Comments
1. Price has moved below the neckline of a Triple Top chart pattern, hinting of a price move lower to 1.3230.
2. Both MACD and Stochastic are moving lower, hinting of more price declines ahead

Key Levels

Support 1.32801.32501.3205
Resistance 1.33201.33701.3420

Technical Overview

USD/JPY – Price moved to a high of 105.79 yesterday but that high was followed by a bearish Engulfing candlestick price pattern. This is a hint of 105.79 being a possible high and a price decline to follow. MACD also support this view with a bearish divergence of its own. Stochastic also has a bearish crossover and is declining from the overbought extreme. Price has since declined to 105.40 and we see continuation to 104.90 over the next few days ahead.

Support 105.40105.15104.85
Resistance 105.80106.15106.55

EUR/USD – Price is testing the previous high of 1.1754 again and we are forecasting a movement higher to 1.1790 in the next 24 hours. MACD is still bullish and is rising. Stochastic just had a bullish crossover and is moving higher despite being in the overbought zone. 20EMA is also pointing higher. Only a price move below 1.1680 would negate our short term bullish view.

Support 1.17251.16801.1645
Resistance 1.17551.17851.1810

GBP/USD – Price was able to maintain above the 20EMA support, dipping below 1.2810 only briefly, and has moved higher to 1.2940 this morning. We see this rally continuing higher to next strong resistance point at 1.3000. Stochastic is moving higher towards the overbought zone. MACD is bullish and also moving higher. 20EMA is also bullish and pointing higher. Momentum indicators are hinting of a bullish price trend ahead.

Support 1.29101.28651.2805
Resistance 1.29651.30001.3050

EUR/AUD – Yesterday our buy call on this pair was wrong and we lost 50 pips as a result. Aussie was the strongest currency in the previous day, resulting in the EUR/AUD dropping lower. Stochastic is in the oversold zone but MACD is still bearish. 20EMA is also pointing lower. We think the downtrend could continue lower to 1.6295 in the next couple of days.

Support 1.63301.62951.6250
Resistance 1.63751.64101.6450

XAU/USD – Price tested the Double Bottom chart pattern price target at $1902 overnight only to decline lower to $1884. Price has not been able to sustain above $1900 for a second day but is also not moving lower. Stochastic is moving higher from the oversold zone. MACD is bullish and rising. 20EMA is also pointing higher. We are hopefully price will break above $1902 and moves higher to $1919 over the next few days

Support 1892.451880.901867.30
Resistance 1902.751915.851930.95

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