FX Commentary – US Weaker On Expectations Of More QE By Federal Reserve

Market Talk
– The dollar was down on Monday morning in Asia, with investors pricing in expectation the U.S. Federal Reserve will increase purchases of longer-dated Treasuries to contain a rise in yields when it hands down its policy later in the week.

– The Aussie was up against the greenback ahead of the release of the Reserve Bank of Australia‘s minutes from its latest policy meeting, due on Tuesday. Investors are widely expected to scale back bets for additional monetary policies following the minutes’ release.

– The British pound saw its biggest one-day gain since Dec. 1 over increased hopes that the U.K. and the European Union would reach a Brexit trade deal after hopes were raided when both parties agreed to extend talks beyond a Sunday deadline set by both parties during the previous week.

– The gains in sterling may not last, some analysts have warned, because UK and the EU have repeatedly struggled to narrow their differences and there is still a risk that UK would exit EU without a trade deal throwing trade and business into chaos.

– Gold held on to gains from the previous week as investors tracked the deployment of the first Covid-19 vaccines in the U.S. and as investors bet that a new U.S. COVID-19 relief package was imminent.

Chart Focus AUD/USD
Key Points
1. Buy AUD/USD recommendation
2. Buy AUD/USD at 0.7525. Stop at 0.7495 and target at 0.7595.
3. Roll out of COVID-19 vaccine and expectation of an increase in bond buying by the Federal Reserve are both likely to weigh on the US dollar.
4. Price is finding support with MACD and Stochastic both hinting of a bullish price trend ahead.

Fundamental Comments
1. Expectations that US FED will increase bond purchases to keep yield lower are likely to weigh on the US dollar.
2. Rollout of COVID-19 vaccine is likely to cap fear of this COVID-19 pandemic, denting demand for safe haven US dollar.

Technical Comments
1. Price is finding support at a support level as well as the 20EMA point.
2. MACD is bullish and turning up. Stochastic has a bullish crossover and is moving higher as well.

Key Levels


Technical Overview
USD/JPY -Price has been trading within a range of 103.85 to 104.75 since 23 November and we are expecting this range to contain trading until a breakout occurs outside this range. Price tested the upper boundary earlier but was capped at 104.57 and has moved lower to 103.82 on Friday night. MACD and Stochastic have both turned up and we are now expecting price to test the upper end of the range.

Support 103.75103.40103.15
Resistance 104.15104.50104.75

EUR/USD – Price declined to a low of 1.2058 on Wednesday and had rallied from this low to a high of 1.2162 on Friday. Our view remains the unchanged. We are looking at a continuation of this rally to 1.2190 in the next couple of days. Both MACD and Stochastic are starting to turn higher, hinting of a price rally ahead. 20EMA has also turned up, hinting of a bullish price trend ahead.

Support 1.21301.21001.2060
Resistance 1.21601.21901.2215

GBP/USD – Price has declined to a low of 1.3133 on news that UK and the EU were still far apart in their Brexit negotiation. However, news that both sides will continue to work this week for a deal sent Sterling higher on Monday morning to 1.3350. Indicators are mixed with MACD bearish but Stochastic rising. More important factor for Sterling movement is likely to be news on Brexit. We remain neutral.

Support 1.33051.32551.3220
Resistance 1.33501.33951.3455

XAU/USD – We had a short recommendation on Thursday which was filled. On Friday we had recommended bringing stop to cost while keeping profit target unchanged. On Friday’s night, price reached a high of $1847.60, taking out our stop at $1842.70. However our view remains unchanged and we are looking at a final decline to $1820. While MACD is bearish, Stochastic is turning up. 20EMA is still bearish and pointing lower. Above $1850 would confirm the low at $1824.00.

Support 1832.801822.101812.60
Resistance 1842.201855.401866.15

USD/CNH – We had a sell recommendation on Friday but that was stopped out when price reached a high of 6.5415 and triggered our stop order at 6.5390 on Friday night. However, our view remains unchanged and we are looking for a decline to 6.4970 in the next few days ahead. MACD is bullish but is moving lower. Stochastic is also moving lower. Both indicators are also warning with divergences warnings.

Support 6.52206.50706.4975
Resistance 6.53406.54706.5535

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