FX Commentary – Soft US Retail Sales And Rising Coronavirus Cases Turned Investors Cautious Towards Riskier Assets.

Market Talk
– The dollar held on to gains on Monday as softening U.S. Retail Sales data and rising coronavirus cases turned investors cautious. The dollar index hovered around a one-month high of 90.887 hit in early morning trade and the mood also supported the safe-haven yen against other majors.

– U.S. retail sales fell for a third straight month in December, data showed on Friday, as renewed measures to slow the spread of COVID-19 triggered job losses. The safety bid added to support for the dollar since the Democrats won control of U.S. Congress a fortnight ago, which triggered a surge in U.S. yields as investors priced in fewer obstacles on a borrow-and-spend incoming Biden administration.

– The euro eased slightly to touch a six-week low of $1.2066 euro, which had surged to 1.2350 on 6 January 2021, has slipped more than 2% as the dollar’s bounce has coincided with surging virus cases and a political crisis in Italy that have cast doubt on the region’s recovery.

– The Chinese economy was reported to have grown 6.5% in the fourth quarter topping forecasts of 6.1%, confirming the Chinese economy has bounced back from the coronavirus pandemic. Industrial production for December also beat estimates, though retail sales missed the mark.

– Gold was down on Monday morning in Asia, dropping to its lowest in one-and-a-half months over a strengthening dollar even as expectations of further U.S. stimulus measures mount.

Chart Focus XAG/USD Silver
Key Points
1. Buy Silver recommendation.
2. Buy Silver at 24.85. Stop at 24.50 and target at 25.80
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. A High Wave candlestick reversal warning and divergence warning from MACD are hinting of a possible price low and an impending reversal.

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. A High Wave candlestick is warning of a possible price low and an impending reversal in trend.
2. MACD has a divergence warning of a possible price low and Stochastic is near to the oversold extreme.

Key Levels


Technical Overview

USD/CNH – We had a buy call on this pair on Thursday, which was filled at 6.4610 when price declined to a day low of 6.4510. Our view remains unchanged. This morning price has reached a high of 6.4999. We would recommend shifting stop higher to 6.4760 and profit target at 6.5090. MACD remains bullish while Stochastic has reached the overbought zone. 20EMA is bullish.

Support 6.49006.47706.4575
Resistance 6.50006.51106.5230

EUR/USD – Price was capped by the 20EMA at 1.2180 and had broken below the 1.2130 support, negating our bullish view. Price has moved to a six-week low but the downside could be limited as MACD is starting to warn with a divergence. Stochastic has also reached the oversold extreme. However, 20EMA is bearish and pointing lower with a steep slope, hinting of a strong bearish price trend.

Support 1.20601.20351.2000
Resistance 1.20951.21301.2185

GBP/USD -Stochastic and MACD had warned with divergence when price reached a high of 1.3710 on Thursday, hinting of a possible price high in the process of forming. The decline has now moved to near to a strong support level at 1.3545. We see price breaking below this support and the decline continuing lower to 1.3450. MACD is bearish and Stochastic is still moving lower. 20EMA is bearish.

Support 1.35451.34951.3450
Resistance 1.35801.36201.3660

XAU/USD – We were looking for one more decline to $1800 level to complete this decline and this morning price made a low of $1810.18 and has rebounded from this low. On the 4-hourly chart, there was a High Wave candlestick which is a sign of a possible reversal. MACD has also shown a divergence warning when price made this low. Taken together, we may have a signal that price had made a low and a reversal. We are now looking for a price rally to $1885 in the next few days ahead.

Support 1827.851810.201801.40
Resistance 1841.051854.401864.35

USD/JPY – Last Friday, we had a sell call at 103.85 which was filled when price rallied to a high of 103.92. Our view remains unchanged. We would recommend bringing stop lower to 104.00 while keeping profit target unchanged at 103.25.  However Stochastic is near to the oversold zone even though MACD remains bearish and moving lower. 20EMA is also hinting of a bearish price trend ahead.

Support 103.50103.20102.95
Resistance 103.85104.20104.55

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