FX Commentary – An Increase In Risk Sentiment Send US Dollar Higher

Market Talk
– The dollar strengthened on safe haven buying on Thursday morning in Asia, in the wake of a sharp decline in U.S. shares during the previous session. Investors turned to the safe-harbour asset as concerns about excessive valuations remain.

– In its first policy decision of 2021, the U.S. Federal Reserve kept monetary policy unchanged as expected on Wednesday but did signal some concern about the pace of economic recovery, which some traders said is another negative factor.

– The euro nursed losses after a European Central Bank Governing Council member Klaas Knot warned on Wednesday that interest rate cuts could be possible to curb the common currency’s recent gains.

– The Chinese offshore yuan fell to a three-week low of 6.5140 per dollar and other Asian currencies as well as the Australian and New Zealand dollars; also fell against the dollar, highlighting broad strength in the greenback.

– Gold prices fell in overnight trading, pressured by concerns over the timing and size of a U.S. coronavirus stimulus bill that is still struck in Congress and strength in the dollar.

Chart Focus EUR/USD
Key Points
1. Sell EUR/USD recommendation.
2. Sell EUR/USD at 1.2130. Stop at 1.2170 and target at 1.2065.
3. Concerns about excessive US stock market valuation and Powell’s warning are both likely to lead to demand for safe haven US dollar.
4. A weak price rally with bearish MACD is a hint of a possible decline ahead.

Fundamental Comments
1. Demand for safe haven US dollar is likely to persist with concerns about excessive valuation for the US stock market.
2. Fed’s Chairman Powell warning about the pace of the US economic recovery is likely to lead to demand for safe haven US dollar.

Technical Comments
1. The rally off the low of 1.2065 has been capped by the falling 20EMA resistance, which is a hint of a weak price rally.
2. MACD is bearish and is hinting of a bearish price trend ahead.

Key Levels


Technical Overview

USD/JPY – Price has broken above last week’s high of 104.10 and should be testing the 8 January 2021 high at 104.39. A break of this high is likely to lead to a test of 104.87. MACD is bullish and 20EMA is rising with a steep slope. Both trend indicators are hinting of more upsides ahead. However, Stochastic is already in the overbought extreme. Inability to break above 104.39 could lead to a decline to 103.60.

Support 104.10103.80103.50
Resistance 104.40104.90105.40

NZD/JPY – After hitting a high of 75.10, price has been on a decline and this morning, price has dropped below a strong support level at 74.35. This is likely to lead to a decline to 73.65. MACD remains bullish but both of MACD’s lines are moving down with the fast line already below the zero line. 20EMA is also pointing lower with a steep slope, hinting of a strong bearish price trend.

Support 74.0573.6573.35
Resistance 74.4074.8075.10

GBP/USD – Price failed to hold above 1.3700 and has declined to a low of 1.3650 this morning. Stochastic has reached the oversold zone and is moving in a flat line which is a hint of a loss of downside momentum. MACD remains bearish but is off the low and there was a divergence warning as well. If 1.3650 is the low, then we are likely to see a test of 1.3750 again in the next 48 hours.

Support 1.36501.36101.3570
Resistance 1.36801.37251.3760

XAU/USD – We had a buy recommendation on this pair yesterday at $1842.90 but price had declined and hit our stop at $1831.25. MACD has remained bearish and is hinting of a bearish price movement ahead but Stochastic is near to the oversold zone. 20EMA is also bearish. We are expecting price to test the low of $1810 in the next few days. Only a move above $1855 would negate our short term bearish view.

Support 1831.151820.201810.20
Resistance 1839.051850.201861.40

XAG/USD – We had a long position from Monday and yesterday we had raised our stop to $25.10. Our stop was taken out when price dropped to a low of $24.68. We lost 15 cents on this trade. MACD has turned bearish. We are expecting price to test the low of $24.68 and later $24.30 in the next 2 days. 20EMA has also turned bearish on the 4-hourly chart and is hinting of a bearish price trend ahead.

Support 24.8524.6024.20
Resistance 25.1525.5025.75

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