FX Commentary – US Dollar Higher On Short Covering But Remains Bearish.

Market Talk
– The dollar held on to its biggest gain in more than two months against major peers on Friday as a rise in U.S. yields triggered some unwinding of bearish bets on the US dollar. U.S. nonfarm payrolls later tonight will be closely watch for clues.

– The greenback bounced off a nearly three-year low, with traders taking profits against the euro in particular, following a slide in the US dollar index of nearly 7% in 2020 and as much as 0.9% in the New Year amid expectations of U.S. fiscal stimulus.

– Democrats won effective control of the Senate, giving President-elect Joe Biden scope to push through more spending, which analysts say will be negative for bonds and the dollar. Biden has hinted that he wants at least two stimulus packages in 2021 to override the economic malaise expected to continue from the coronavirus pandemic.

– Investors now await U.S. nonfarm payrolls later on Friday for clues on whether significantly more stimulus will be needed to keep the economic recovery alive.

– Gold rose on Thursday as investors began making a beeline for the yellow metal as control of U.S. Senate by President-elect Joe Biden’s Democratic Party opened the path for stimulus that could take the precious metal to $2,000 and beyond as investors buy in as a hedge against Biden’s fiscal measures.

Chart Focus
Key Points
1. Buy NZD/USD recommendation.
2. Buy NZD/USD at 0.7245. Stop at 0.7205 and profit target at 0.7310.
3. Control of Senate is likely to lead to more US stimulus and coupled with low interest rates are both likely to keep the US dollar weak.
4. Price is supported by a strong support with momentum indicators hinting of a bullish price trend ahead.

Fundamental Comments
1. Win by Biden’s Democrat Party in Senate runoff is likely to lead to more US stimulus which is likely to keep the US dollar weak.
2. Low interest rates as pledged by the US Federal Reserve are likely to keep the US dollar weak.

Technical Comments
1. Price support provided by the 20EMA as well as a resistance turned support point are both likely to keep the uptrend intact.
2. MACD remains bullish while Stochastic has a bullish crossover and is turning up.

Key Levels


Technical Overview
USD/JPY – Price moved higher than our expectation to a high of 103.99 this morning. Stochastic is into the overbought zone but MACD remains bullish. 20EMA is also pointing higher with a steep slope hinting of a strong bullish price trend ahead. We are likely to see a test of 104.15 before the rally reverse. We see the topside limited to 104.15 and a decline to 103.40 in the next few days.

Support 103.70103.35102.95
Resistance 104.15104.55104.95

EUR/USD – Price had rallied to a 32-month high on Wednesday at 1.2349 but has declined to 1.2234 on Friday. We think this decline is a correction and the correction has probably ended at 1.2234. Stochastic has a bullish crossover and is hinting of a bullish price trend ahead. MACD is also hinting of a possible bullish price trend ahead. We see price testing the high again if 1.2234 can hold.

Support 1.22351.22001.2165
Resistance 1.22801.23101.2350

GBP/USD – Price has been caught inside Monday’s range for the past few days and last night, price broke below the range briefly but moved back into the range. There were divergence warnings from MACD and Stochastic hinting of a price top. Our view remains short term bearish. We see price moving lower to 1.3495 to end the correction before an uptrend resumes.

Support 1.35301.35001.3465
Resistance 1.35801.36201.3650

XAU/USD – Price reached a high of $1927.60 last night but was unable to hang on to its gains. Price has declined to $1907 currently at the time of writing. While we are bullish on the long term, we remains bearish for the short term and we are looking for another dip to $1897 to end this correction. Stochastic is into the oversold zone. MACD is mildly bearish at the moment. If price were to dip below $1897, the short term bearish trend could persist for a longer period of time.

Support 1897.601886.501870.30
Resistance 1910.151924.601932.80

USD/CNH – We had a sell call on this pair yesterday but our stop order was triggered at 6.4650 when price reached a high of 6.4776 last night. However we remain bearish on this pair. Price has declined to 6.4580, which is the 20EMA point as well as a previous resistance turned support line. Stochastic has a bearish crossover in the overbought zone and is moving lower. MACD remains bearish.

Support 6.44956.43156.4120
Resistance 6.46056.48106.4965

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