FX Commentary – Silver Up On Reddit Call To Buy

Market Talk
– The US dollar was steady at the start of a new week, holding to gains from the previous week with traders remaining wary amid the battle on Wall Street between hedge funds and retail investors. Wrangling over the size of President Joe Biden’s fiscal stimulus package and delays to vaccine rollout had weighed on sentiment, stoking demand for safer assets.

– A group of Republican senators are urging Biden, to significantly downsize his proposed $1.9 trillion pandemic relief package, and have floated a $600 billion alternative. Investors are trying to evaluate whether an almost 7% selloff in 2020, driven by expectations of a global pandemic recovery amid massive fiscal spending and continued ultra-easy monetary policy, is likely to continue.

– Wall Street is bracing for more volatility after retail investor groups that organized via social media targeted hedge fund short positions fuelling volatility.  Silver prices rallied 7% on Monday morning, fueled by a wave of fresh enthusiasm from online traders.

– The euro was little changed at $1.2132, as it continued to dither in a narrow range. The Aussie dollar dipped following new signs of weakness of the recovery in China, after data from the weekend showed China’s factory recovery slowed in January, hobbled by a wave of coronavirus infections.

– Gold was up on Monday morning in Asia, but investor focus was on silver as the precious metal soared up to a nearly six-month high after messages began to circulate on Reddit on Thursday morning urging retail investors to pile into the market and drive up prices.

Chart Focus USD/JPY
Key Points
1. Sell USD/JPY recommendation.
2. Sell USD/JPY at 104.80. Stop at 105.10 and target at 104.10.
3. A wrangling over the size of Biden’s fiscal stimulus package and a battle between retail investor groups and hedge funds are likely to drive up demand for safe haven yen.
4. Price may have reached a high and Stochastic is hinting of a bearish price trend ahead.

Fundamental Comments
1. A wrangling over the size of President Joe Biden’s fiscal stimulus package is likely to weigh on the US dollar.
2. A battle between retail investor groups and hedge funds is likely to increase market volatility and demand for safe haven yen.

Technical Comments
1. Price may have reached the Fibonacci 127% price target and the rally may have ended.
2. Stochastic had a bearish crossover and is turning down from the overbought extreme.

Key Levels

Support104.60104.35104.10
Resistance104.95105.25105.50

Technical Overview
USD/CAD – We had a buy call on this pair but our view was wrong and we lost 50 pips on this trade. Price had declined below the 20EMA as well as the neckline of an Inverse Head and Shoulder chart pattern, invalidating the chart pattern. Price had also declined below the previous high resistance turned support at 1.2780. Stochastic had turned down from the overbought extreme but is still continuing to move lower while MACD is neutral at the moment. We are likely to see price test the support at 1.2690 in the next 48 hours.

Support 1.27501.27101.2685
Resistance 1.27901.28401.2880

EUR/USD – We had a sell call last Thursday at 1.2130 which was filled when price reached a high of 1.2141. Price had moved higher last Friday to 1.2155 but our stop at 1.2170 was not triggered. We would recommend keeping stop at 1.2170 and raising profit order to 1.2080. Stochastic is near to the overbought extreme and could be moving lower. However, if price continues to move sideways again today, we may look to close the position tomorrow as MACD could be turning bullish.

Support 1.21151.20851.2055
Resistance 1.21551.21901.2225

GBP/USD – Price is back near to the 1.3755 resistance zone again this morning. Price will need to move above this resistance in order to advance higher. If not, price is likely to decline towards the bottom of the range again. MACD is bullish but is not strong at the moment. Stochastic is also neutral. 20EMA is pointing higher but is not strong as well. We would prefer to see a break above 1.3750.

Support 1.37201.36801.3635
Resistance 1.37551.37901.3840

XAU/USD – Price tested the high of $1874 last Friday but was unable to move above it. Instead, price had decline to a low of $1841. This morning we saw a rally to $1867 and with Stochastic still rising and MACD turning bullish, we are expecting price to test and break above $1874 in the next 2-3 days ahead. 20EMA is also bullish and hinting of a bullish price trend, supporting the bullish view.

Support 1861.251850.201839.05
Resistance 1874.901884.401894.40

XAG/USD – The rally which started last Thursday after messages began to circulate on Reddit, had reached a high of $28.97 this morning. The rally may continue to $29.82, which is also the highest but Stochastic on the 4-hourly chart is already in the overbought extreme. MACD is also at its extreme and the topside may be limited. 20EMA is pointing up with a steep slope, hinting of a strong bullish trend.

Support 28.4527.9027.45
Resistance 29.0029.4029.85

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