FX Commentary – US Dollar Advanced On Rising US Treasury Yields

Market Talk
– The dollar advanced on Wednesday, hitting a four-month high against the yen as U.S. Treasury yields jumped on the prospects of further economic recovery and a possible acceleration in inflation.

– The New York Federal Reserve’s Empire State manufacturing report released on Tuesday offered an upbeat economic picture, with a rise in its “prices paid index” stoking fear of faster inflation leading to the U.S. Treasury 10-year yield rising to 1.331% from around 1.20% at the end of last week.

– The yen, which is sensitive to U.S. yields, reacted the most jumping to a four-month high of 106.22 yen. The offshore Chinese Yuan also stepped back after hitting a 2-1/2-year high of 6.4010 per dollar and last stood at 6.4269.

– The British pound held firm at $1.3863, having reached its highest level since April 2018 on Tuesday. Against the euro, the pound traded at its highest level since early May at 87.07 pence per euro.

– Gold was down on Wednesday morning in Asia, continuing its decline for a fifth consecutive day. The yellow metal is headed for its longest period of decline in almost a year, thanks to Treasury yields surging over expectations of a quick global economic recovery from COVID-19.

Chart Focus USD/CNH
Key Points
1. Buy USD/CNH recommendation.
2. Buy USD/CNH at 6.4390. Stop at 6.4270 and profit target at 6.4790
3. Good manufacturing data and rising US Treasury yields are both keeping the US dollar strong.
4. A Double Bottoms chart pattern and rising MACD are both hinting of a price rally ahead.

Fundamental Comments
1. Rising US Treasury yields is giving the US dollar support against its peers.
2. Good US manufacturing data is keeping the US dollar strong.

Technical Comments
1. Price has broken above the neckline of a Double Bottoms chart pattern, which is a hint of a price rally ahead.
2. MACD is rising and is hinting of a bullish price trend ahead.

Key Levels


Technical Overview
USD/JPY – Price reached a high of 106.22 this morning but on the 4-hourly chart, there was a Shooting Star candlestick price pattern, which is a hint of a price high and a possible reversal ahead. Stochastic is in the overbought zone but MACD is bullish at the moment. 20EMA is pointing higher with a steep slope which is a hint of a bullish price trend ahead. We would prefer to be on the bearish side unless 106.22 high price is broken.

Support 105.75105.40105.05
Resistance 106.05106.50106.90

EUR/USD – We saw a rally to 1.2169 yesterday before a decline. The decline has continued and at the point of writing, price has just moved below the support line at 1.2080. MACD remains bearish but is near to an extreme point. However, Stochastic is in the oversold zone. 20EMA is pointing lower with a steep slope, hinting of a bearish price trend ahead. We see the decline continuing to 1.2025 over the next couple of days.

Support 1.20551.20201.1985
Resistance 1.20851.21201.2155

GBP/USD – Price reached a high of 1.3951 on Tuesday morning and has declined to the 20EMA support line at 1.3880. This is also the previous resistance turned support line. MACD is still bullish and could be turning up again, hinting of a price rally. Stochastic is declining but is in the middle of its range. We see price holding around the 20EMA lines and another rally to test the high of 1.3950 again within the next 1-2 days

Support 1.38701.38301.3785
Resistance 1.39101.39551.4010

XAU/USD – Our buy recommendation was filled on Monday at $1817 when price dropped to a low of $1815.87. Yesterday, price declined to a low of $1781, taking out our stop order at $1806. We saw a Hammer candlestick price pattern on the 4-hourly chart, which is a hint of a possible price bottom $1781. MACD is bearish but there could be a divergence warning. Stochastic is close to the oversold zone. We see $1781 as a temporary low and a price rally higher to $1810 over the next 1-2 days.

Support 1789.151781.701764.35
Resistance 1796.901810.301826.30

USD/CAD – We had a sell recommendation yesterday but we were wrong as the US dollar shot up on rising yields yesterday. We lost 40 pips on this trade. MACD is still bearish and 20EMA remains bullish at the moment. Both trend indicators are giving conflicting signals at the moment. Stochastic is still moving higher. Price may continue towards the next higher resistance at 1.2760.

Support 1.26751.26401.2605
Resistance 1.27101.27601.2800

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