FX Commentary – Hefty Stimulus Package Weakens US Dollars

Market Talk
– The dollar was down on Thursday morning in Asia. The greenback continued its losses as increased hopes for massive U.S. stimulus measures under the newly inaugurated Joe Biden administration eroded demand for safe-haven currencies.

– The dollar was mostly flat against its fellow safe-haven currency, after sliding to a two-week low overnight. The Bank of Japan kept the interest rate unchanged at 0.10% when it handed down its policy decision earlier in the day.

– The Bank of Canada held its key overnight interest rate at 0.25% on Wednesday, with the arrival of a COVID-19 vaccine and stronger foreign demand brightening the economic outlook in the medium term. The Canadian dollar gained for a third consecutive day after seeing a three-year high during the previous session

– The European Central bank is also due to hand down its policy decision later in the day. The euro gained 0.2%, reversing losses seen during the previous session. Europe also continues to deal with a second wave of COVID-19 cases, and fears are mounting that new strains of the virus could lead to stricter lockdowns and more economic damage.

– Gold held gains after surging on Wednesday as the dollar extended declines with investors looking ahead to the potential delivery of more fiscal stimulus. Silver was also in focus after Republicans in the U.S. Congress have indicated their willingness to work with the new president’s administration top priority, a $1.9 trillion U.S. fiscal stimulus plan, but some are opposed to the plan’s price tag.  

Chart Focus USD/JPY
Key Points
1. Sell USD/JPY recommendation.
2. Sell USD/JPY at 103.45. Stop at 103.75 and target at 102.75.
3. Big stimulus package and a decline in US Treasury yield are both likely to weigh on the US dollar.
4. Price has triggered a Double Tops chart pattern and MACD is also hinting of a bearish price trend ahead.

Fundamental Comments
1. US$ 1.9 billion stimulus package proposed by the Biden administration is likely to weigh on the US dollar.
2. Decline in US Treasury yield is likely to weigh on the US dollar.

Technical Comments
1. Price has declined below the Double Tops neckline and is hinting of a decline to 102.71.
2. MACD has turned bearish and is hinting of a bearish price trend ahead.

Key Levels


Technical Overview

AUD/USD – Price has declined to a low of 0.7658 on Monday but has bounced back up to 0.7770. Price seems to have settled into a range of 0.7800 to a low of 0.7658. We think unless price can moved above 0.7805, if not we are likely to see a consolidation ahead in this range. Stochastic is into the overbought zone but MACD remains bullish while 20EMA is bullish and rising with a steep slope.

Support 0.77450.77100.7665
Resistance 0.77800.78200.7850

XAG/USD – On Monday, we had a buy call on this pair at $24.85. Our profit order was triggered last night at 25.80. We had a profit of $0.95 from this trade. 20EMA is still bullish. MACD remains bullish but Stochastic has reached the overbought extreme. There is also a strong resistance at $26.00 and price will need to move above this point. If not, we are likely to see a decline to $25.00.

Support 25.5025.1524.75
Resistance 26.0026.4526.70

GBP/USD -Price tested 1.3710 overnight but only managed to advance to a high of 1.3717 before declining to 1.3620. Stochastic has a bearish crossover and is moving lower. MACD remains bullish and is hinting of a bullish price trend.20EMA is also bullish and rising. We see price testing the 1.3717 high again as long as price can stay above the 20EMA support at 1.3620.

Support 1.36251.35751.3545
Resistance 1.36751.37101.3750

XAU/USD – Price has moved above $1865 and we are likely to see a test of $1885 in the next couple of days. 20EMA is bullish and has a steep slope, which is a hint of a strong bullish trend ahead. MACD remains bullish but Stochastic has reached the overbought extreme. Price will need to stay above $1849 or our bullish view to $1902 after $1885 for the next few days will be threatened.

Support 1863.801853.651838.80
Resistance 1875.601885.201902.25

EUR/USD – We had recommended buying at 1.2120 yesterday but price dipped to a low of 1.2076, triggering our stop loss at 1.2090. Price has recovered to 1.2125 and the outlook looks like price has bottomed at 1.2076 and we could see a move above 1.2157. MACD remains bullish and Stochastic may see a bullish crossover, supporting our short term bullish outlook to 1.2200.

Support 1.21101.20801.2050
Resistance 1.21551.22001.2235

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