FX Commentary – US Dollar Is Weaker After Treasury Yields Rally Snapped.

Market Talk
– The dollar was down on Wednesday morning in Asia, with a retreat in U.S. Treasury yields sapping momentum from the greenback’s recent rally and investors cautiously resumed bets that bigger US budget deficits will drive the US dollar lower.

– Benchmark 10-year Treasury yields fell nearly 7 basis points from a 10-month high seen on Tuesday, in turn snuffing out the dollar’s three-day rally and pushing it back towards multi-year lows.

– Fed St. Louis President James Bullard also pushed back on speculation that the Fed will begin to ease its asset-purchase program any time soon and reiterating that monetary policy is going to stay supportive seems to have dampened the greenback’s rally.

– Against the euro, the greenback posted its sharpest daily fall in more than a month and it dropped more than 1% against the pound, which was also boosted by the Bank of England governor Andrew Bailey talking down the prospect of negative rates.

– Gold was up on Wednesday morning in Asia, with both the dollar and U.S. Treasury yields hitting the pause button in their recent rallies. Prospect of higher inflation driven by more U.S. fiscal stimulus is driving the yellow metal higher.

Chart Focus XAG/USD Silver
Key Points
1. Sell Silver recommendation.
2. Sell Silver at $25.60. Stop at $26.10 and profit target at $24.40
3. US stimulus is likely to lead to a weaker US dollar but is likely to lead to higher demand for Silver as the US economy recovers.
4. Price is likely to be capped by a strong resistance point and MACD is hinting of a bearish price trend ahead.

Fundamental Comments
1. Expectations of more US stimulus are likely to lead to bigger US budget deficits and drive the US dollar weaker.
2. Stimulus is likely to lead to a US economic recovery which is likely to lead to more demand for Silver.

Technical Comments
1. Price is likely to be capped at 25.60 with 20EMA and Fibonacci correction point providing resistance.
2. MACD is bearish and could be turning down, hinting of a bearish price trend ahead.

Key Levels


Technical Overview
USD/JPY – Price had reached a high of 104.40 on Monday’s morning but there was a divergence warning given by MACD warning of a potential high. Price had declined to a low of 103.50 this morning. The decline was halted by a strong support zone at 103.50. We are likely to see a corrective rally to 103.90 in the next 24 hours. Our view is there will likely be another decline after the corrective rally as MACD is still bearish and pointing lower. 20EMA is also hinting of a bearish price trend.

Support 103.50103.25102.95
Resistance 103.80104.10104.55

EUR/USD – After touching a low of 1.2130 on Monday, we have seen a rally that has brought price to 1.2220. We are expecting price to test the resistance at 1.2250 in the next 24 hours. If price stays below 1.2250, we cannot rule out another decline. Stochastic has reached the overbought zone but MACD remains bullish. 20EMA is also hinting of a bullish price trend ahead.

Support 1.21851.21351.2095
Resistance 1.22251.22501.2285

GBP/USD – Yesterday, price has broken above a support turned resistance line at 1.3540. We had expected price to continue higher to 1.3670 but price has already exceeded this point to a high of 1.3692. On the 4-hourly chart, the high was in the form of a Doji which is a warning of a possible price high. Stochastic is also into the overbought zone but MACD and 20EMA remain bullish. We could see a decline to 1.3600 for today or tomorrow.

Support 1.36351.35801.3540
Resistance 1.36951.37151.3760

AUD/USD – We saw a 3-wave A-B-C correction to a low of 0.7665 on Monday night which was also the Fibonacci 161.8% projection of the first decline in the correction. Price has since rallied higher to 0.7780. MACD remains bearish but Stochastic is still rising. 20EMA has turned bullish and is heading higher. Price is likely to test the recent high of 0.7818 in the next couple of days.

Support 0.77400.76950.7665
Resistance 0.77800.78200.7850

XAU/USD – Our sell recommendation was not filled as price only reached a high of $1863.70. Price had declined lower to $1837.40 but has bounced back to $1857 again. Our view remains unchanged. We think there could be one more decline to $1800 level to complete this decline. MACD remains bearish and Stochastic is still looking weak. 20EMA is likely to cap price rally at $1863.

Support 1854.401841.051828.25
Resistance 1864.351877.401885.50

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