FX Commentary – US Dollar Continues To Gain Our Rising Treasury Yields

Market Talk
– The dollar was up on Tuesday morning in Asia, seeing its fourth consecutive day of gains against major peers as the prospect of large stimulus measures after Biden had promised “trillions” in extra COVID-19 stimulus measures, drove U.S. Treasury yields higher.

– Extra spending on the stimulus measures could lead to faster inflation, which could lead to the Federal Reserve hiking rates to rein in inflation, making the U.S. currency attractive.

– Political uncertainty tempered the mood somewhat as Democrats introduced a resolution to impeach U.S. President Donald Trump, accusing him of inciting insurrection following a violent attack on the Capitol last week.

– The euro was steady after slipping to 1.2132 during the previous session for the first time since Dec. 21. Sterling has fallen after the last-minute Brexit deal signed in December was quickly overshadowed by tighter lockdown measures to combat the spread of a new variant of COVID-19.

– Gold was down on Tuesday morning in Asia, declining slightly as investor prepare for higher government spending under the incoming Joe Biden administration. The expectations drove the dollar, which usually moves inversely to gold, up on Tuesday.


Chart Focus Gold
Key Points
1. Sell Gold recommendation
2. Sell Gold at $1872.00. Stop at 1901.00 and profit target at 1820.00
3. Rising US Treasury yield, US political uncertainty and rising coronavirus cases are supporting the US dollar.
4. Price is likely to be capped by a strong resistance and MACD is hinting of a bearish price trend ahead.

Fundamental Comments
1. Rising US Treasury yield is supporting the US dollar.
2. Political uncertainty and rising coronavirus cases are also supporting the US dollar.

Technical Comments
1. Price is likely to be capped by the 20EMA as well as the Fibonacci 50% correction point.
2. MACD is bearish and is hinting of a bearish price trend ahead.

Key Levels

Support1846.901835.051816.95
Resistance1859.351872.401885.55

Technical Overview
USD/JPY – Price reached a high of 104.40 this morning but there was a divergence warning given by MACD warning of a potential high. However, 20EMA is pointing up with a steep slope hinting of a strong bullish price trend. Stochastic is in the overbought extreme at the moment. We are cautious bullish on this pair with support likely at 103.90 and the topside could be limited to 104.75.

Support 104.10103.85103.35
Resistance 104.55104.95105.15

EUR/USD – Price finally broke below a 3-week uptrend line last Friday and we could be seeing a bigger correction ahead to 1.2125. Price reached a low of 1.2132 last night. This may be a temporary low and we could see a corrective rally to 1.2195-1.2205 as Stochastic is already in the oversold extreme and MACD is turning around. We see another test of 1.2125 in the next few days unless price move above 1.2250.

Support 1.21301.20951.2055
Resistance 1.21651.22101.2245

GBP/USD – Price reached a low of 1.3451 overnight and has managed to push higher above a support turned resistance line at 1.3540. The 20EMA is also providing resistance at this point. Last night low could be the low if price managed to stay above the strong resistance turned into support currently at 1.3540. Above 1.3540, we see price going to 1.3670 in the next couple of days. Below 1.3540, we see another test of the low at 1.3430.

Support 1.35351.34851.3430
Resistance 1.35801.36201.3670

AUD/USD – We saw a 3-wave A-B-C correction to a low of 0.7665 last night which was also the Fibonacci 161.8% projection of the first decline in the correction. We think the correction could be completed and price could be moving higher to 0.7818 in the next few days ahead. Stochastic is turning up from the oversold extreme. MACD is bearish but is turning up from its extreme. A decline below 0.7665 would negate our bullish view and call for a test to 0.7630.

Support 0.76950.76650.7630
Resistance 0.77250.77600.7795

USD/CAD – Yesterday, we had a buy call on this pair but price did not dip to our buy level. Instead, price rallied to 1.2388 and has dropped back to 1.2760 at the point of writing. We do not think the rally is completed. There could be one more rally above 1.2833 if price does not decline below 1.2720. MACD remains bullish but Stochastic has a bearish crossover and is declining. 20EMA remains bullish.

Support 1.27551.27201.2695
Resistance 1.27901.28351.2875

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