FX Commentary – US Dollar Remains Strong On Expectation Of More Stimulus Driving Up Yields.

Market Talk

– The US dollar held onto gains made on Wednesday in early Asian trading on Thursday as investors continued to unwind bearish bets. The dollar has risen in four of the past five trading sessions as President-elect Joe Biden prepared to outline his plans for massive fiscal stimulus.

– The greenback extended its rebound from near three-year lows versus major peers supported by higher U.S. yields as the prospect of more stimulus has weighed on U.S. government bonds, sending the benchmark Treasury yield above 1% for the first time since March.

– However many analysts expect the currency’s bounce to be temporary, as a build-up of bearish dollar positions are shaken out. Longer term, they expect more U.S. stimulus to support risk sentiment, weighing on the greenback, which is traditionally considered a safe-haven.

– The climb in yields is expected to resume, partly due to the effect of the stimulus package from the Biden administration. An auction of $24 billion in 30-year bonds was well bid, further pressuring yields lower to 1.0951%, from 1.138% late on Tuesday.

– Gold prices remained steady on Thursday morning as the US dollar remained strong, limiting gold’s rebound. Those long the yellow metal also appeared restrained by concerns that the 10-year note could put in another resurgent performance later in the week.

Chart Focus USD/CNH
Key Points
1. Buy USD/CNH recommendation.
2. Buy USD/CNH at 6.4610. Stop at 6.4510 and profit target at 6.5080
3. Higher Treasury yield leads to unwinding of short US dollar position and is keeping the US dollar bid at the moment.
4. Price has a strong support provided by 20EMA and Fibonacci supports and Stochastic is hinting of a bullish price trend ahead.

Fundamental Comments
1. Higher US Treasury yield is supporting the US dollar.
2. Unwinding of short US dollar position is supporting the US dollar

Technical Comments
1. Price is supported by the 20EMA and Fibonacci support zone and is unlikely to go lower.
2. Stochastic is rising and hinting of a bullish price trend ahead.

Key Levels


Technical Overview
USD/JPY – We were looking for a corrective rally to 103.90 yesterday but the rally reached a high of 104.19 this morning. This may not be a corrective rally but part of the bullish trend movement from the low of 102.58. This rally is likely to extend to 104.90 or higher 105.50. Stochastic is moving higher and MACD has turned bullish. Both are hinting of a bullish price trend ahead. A move below 103.20 would negate our bullish view for the next few days.

Support 103.80103.50103.20
Resistance 104.20104.55104.90

EUR/USD – After touching a low of 1.2130 on Monday, price had a rally that reached a high of 1.2220 on Wednesday’s morning. Price has failed to test 1.2250 and has declined to 1.2165. For the past 2 days, price has been caught inside Monday’s trading range and we are expecting price to consolidate within this range until there is a breakout. MACD remains bearish. Stochastic is still moving lower after a bearish crossover. 20EMA is also bearish. Wait for the breakout of range for next directional trend.

Support 1.21351.20951.2055
Resistance 1.21851.22201.2250

GBP/USD – Price reached a high of 1.3699 overnight and has declined to 1.3620 at the time of writing. Stochastic has a bearish crossover and is moving lower but MACD remains bullish. 20EMA is currently supporting price at 1.3615. If price can hold above this support, we are likely to see a rally above 1.3700. A move below 1.3530 would negate our bullish view.

Support 1.36201.35801.3540
Resistance 1.36601.37001.3760

XAU/USD – Our view remains unchanged. We think there could be one more decline to $1800 level to complete this decline. The current consolidation could be a wave 4 correction based on the 4-hourly chart. Stochastic has a bearish crossover and is moving lower and MACD remains bearish. Momentum indicators are both hinting of a bearish price trend ahead. 20EMA is still capping price advance at $1864. Only a price move above $1901 would negate our bearish view.

Support 1841.051828.251817.15
Resistance 1854.401864.351877.40

XAG/USD – Yesterday, we had recommended selling this pair. Our entry order was filled at $25.60 when price reached an overnight high of $25.67. Overnight, price only declined to a low of $25.10. Stochastic has a bearish crossover and is moving lower and MACD remains bearish. 20EMA is still capping price advance at 25.60. Indicators we are looking at, remain bearish. Our view remains unchanged. We would recommend bringing stop lower to 25.75 and profit target higher to 24.80.

Support 25.3525.0524.80
Resistance 25.7026.1026.55

Related Posts

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.