FX Commentary – US Dollar Holds Ground On Short Covering

Market Talk
– The dollar held on to gains on Thursday morning in Asia, with investors adjusting earlier bullish expectations for a COVID-19 vaccine. This adjustment tempered the risk assets rally triggered by the vaccine expectations while maintaining enough confidence to support the greenback against other safe-haven assets.

– A sharp decline in U.S. bond yields, as well as the Federal Reserve’s policy of an extended period of low rates and hopes for a global economic recovery from COVID-19 that would boost other currencies contributes to a decline in the dollar.

– The yen is at 105.15 but around 2% below the eight-month high it saw against the dollar during the previous week, after U.S. president-elect Joe Biden took the lead in the presidential election spurring a dollar sell-off.

– The NZ dollar saw gains as the Reserve Bank of New Zealand (RBNZ) adjusted its “unconstrained” cash rate projection upwards due to a better-than-expected economic performance and tempering expectations of negative rates.

– Gold was in the red again on Wednesday, hurt by a stronger US dollar, less than 24 hours after clawing back some losses from Monday’s epic 5% decline as a COVID-19 vaccine raised hopes for a quick economic recovery.

Chart Focus GBP/USD
Key Points
1. Sell GBP/USD recommendation
2. Sell GBP/USD at 1.3200. Stop at 1.3240 and profit target at 1.3115
3. Worries over Brexit negotiation and adjustment after a sharp US dollar decline are both weighing on the British pound.
4. A reversal candlestick pattern with divergence warnings from momentum indicators is both warning of a price reversal.

Fundamental Comments
1. Worries over Brexit as talks between the UK and the European Union drag on without conclusion as dead line nears.
2. Adjustment to expectations after a sharp decline following COVID-19 vaccine news, is leading investors to cover US dollar selling.

Technical Comments
1. A Long Legged Doji candlestick pattern is warning of a possible price high and calling for a reversal.
2. Both MACD and Stochastic are warning with divergence of a possible price high and calling for a reversal.

Key Levels


Technical Overview

USD/JPY – Price broke out of a Pennant chart pattern yesterday and moved to a high of 105.67. This is a continuation chart pattern which means price is likely to move higher to test the previous high of 105.75 or 106.10. There is a danger that 105.67 could be the high if price fails to hold above the Pennant consolidation area. MACD has warned with a divergence and Stochastic has a bearish crossover and is declining form the overbought zone.

Support 105.05104.75104.40
Resistance 105.45105.85106.10

EUR/USD – We had a buy call on this pair yesterday but we were wrong and lost 45 pips on this trade. MACD has turned bearish and is moving lower but Stochastic is turning up from the oversold zone. These two momentum indicators are in conflict with each other while 20EMA is still bearish. Price may continue to decline if it cannot move above the 20EMA at 1.1795.

Support 1.17451.17101.1680
Resistance 1.17901.18351.1880

USD/CAD – Price is testing the resistance point at 1.3100 and a price break above this strong resistance zone can lead price higher to 1.3235. MACD has turned bullish and is rising but Stochastic has reached the overbought zone. 20EMA has turned bullish and is pointing higher. However, an inability to move above this resistance point could lead to a decline to test the low of 1.2927 again.

Support 1.30501.30101.2980
Resistance 1.31001.31451.3195

XAU/USD – Price was capped below Tuesday’s high of $1890.10 and we saw a decline in price to $1856.15. The consolidation between the ranges of $1850 to $1890 could continue as MACD is not showing a strong trend and 20EMA is now flat. As long as price stays below $1907, the risk is a decline below $1850. This consolidation could also take a few days.

Support 1864.801856.101848.45
Resistance 1872.501884.351894.30

USD/CNH – We had moved the stop loss lower yesterday and we were stopped out of this trade at 6.6260 when price reached a high of 6.6289 last night. Stochastic is still rising and has not reached the overbought zone. MACD has turned bullish and is rising. Both momentum indicators are warning that the price rally can continue higher. 20EMA has also turned bullish.

Support 6.61806.59806.5740
Resistance 6.63906.64906.6635

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