FX Commentary – US Dollar To Decline After Biden’s Party Gains Control Of Senate.

Market Talk
– The dollar languished near its lowest level in nearly three years on Thursday after Democrats won control of the U.S. Senate, winning both Senate runoff and clearing the way for a larger fiscal stimulus under President-elect Joe Biden.

– Analysts generally assume a Democrat-controlled Senate would be a net positive for economic growth globally and thus for most risk assets, but negative for bonds and the dollar as the U.S. budget and trade deficits may widen further.

– The dollar indexhit its lowest since March 2018 at 89.20 and the euro gained over a weak US dollar but failed to move above the $1.2349 level it reached on Wednesday for the first time since April 2018.

– The riskier Australian dollar was little changed at 78.02 U.S. cents after touching a nearly three-year high of 78.19 on Wednesday. The kiwi reached a high of 0.7314 before dipping lower to 0.7296.

– Gold prices tumbled 2% Wednesday in profit-taking ahead of an anticipated swing in Senate control to President-elect Joe Biden’s Democratic Party that analysts said could result in new stimulus by his administration and new highs for the yellow metal.

Chart Focus USD/CNH
Key Points
1. Sell USD/CNH recommendation.
2. Sell USD/CNH at 6.4510. Stop at 6.4650 and target at 6.4120
3. Expectations of more US stimulus and interest rate differential are both likely to keep the US dollar weak.
4. Price is likely to be capped by a strong resistance point with momentum indicators hinting of a bearish price trend.

Fundamental Comments
1. Expectations of more US stimulus after Biden’s party won control of Senate are likely to weaken the US dollar.
2. Interest rate differential is with the Chinese yuan.

Technical Comments
1. Price is likely to be capped by the 20EMA point and a strong resistance point at 6.4570.
2. MACD is bearish and is hinting of a bearish price trend ahead while Stochastic has a bearish crossover and is pointing lower.

Key Levels


Technical Overview
USD/JPY – Our buy order at 102.80 was filled when price declined to a low of 102.75. Price reached a high of 103.44 overnight, missing our profit target at 103.50. Our view remains unchanged from yesterday. We would recommend bringing stop loss to entry level at 102.80 while keeping profit target at 103.50. MACD is hinting of a bullish price trend ahead. Stochastic is also hinting of a bullish price trend ahead.  We see a chance for price to test 103.70 in the next 48 hours.

Support 102.95102.55102.30
Resistance 103.35103.70104.15

EUR/USD – Price rose to a 32-month high on Wednesday but MACD failed to match price’s strength. MACD has a bearish divergence warning of a potential price high. Similarly Stochastic has a divergence warning and is close to the overbought zone. However 20EMA is pointing up with a steep slope, which is a sign of a strong bullish price trend. This morning price had moved up to 1.2343 again and we think this could be a good opportunity to get into a short term short position for a corrective decline.

Support 1.23201.22801.2240
Resistance 1.23501.23801.2410

GBP/USD – Price has been caught inside Monday’s range for the past few days. There were divergence warnings from MACD and Stochastic. 20EMA is also flat, hinting of a sideways movement ahead. We see a price consolidation to unwind the divergence warnings over the next couple of days. On a longer basis, we see price moving lower to 1.3495 to end the correction before an uptrend resumes.

Support 1.35751.35401.3500
Resistance 1.36201.36501.3705

XAU/USD – Price has broken above a down trending channel at $1906 on Monday’s morning and reached a high of $1959.25 yesterday. Price later tumbled to a low of $1900.60 in a correction. There could be 1 more dip before the correction ends. We remain bullish on a longer term but would be looking to stay bearish for the short term. We see price capped at $1925 and a test to $1898 over the next few days. If price were to dip below $1898, the short term bearish trend could persist for a longer period of time.

Support 1910.151900.201886.50
Resistance 1924.601932.801943.80

XAG/USD – Price reached a high of $27.91 overnight and has moved lower to $26.60. The high was capped by a trend channel and if price is unable to break above this trend channel, we are likely to see a correction after Silver prices had rallied since 30 November 2020. The price correction can bring price lower to either $25.60 or $24.90. Both momentum indicators, MACD and Stochastic are near their high extreme at the moment.

Support 26.9026.5026.05
Resistance 27.3027.9028.30

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