Market Talk
– The dollar was down on Tuesday morning in Asia, dropping to a near six-week low as investors await answers from U.S. Federal Reserve Chairman Jerome Powell’s semi-annual report at the Senate Banking Committee on Tuesday and the next day at the House Financial Services panel to rising inflation worries.
– Bond yields have risen sharply as prospects of more U.S. fiscal stimulus boosted hopes for a faster economic recovery globally but is also fuelling inflation worries. The AUD and NZD climbed to their highest levels in almost three years as prices for materials such as crude oil rose, triggering worries of a global rise in inflation.
– Powell is expected to provide assurance that the Fed will not respond to higher inflation with an immediate rate hike, which could potentially calm bond markets and could eventually potentially cause the dollar to drop further.
– The pound has rallied nearly 3% in 2021 to 1.4083, as the U.K. rolled out a quick and successful COVID-19 vaccine program, in turn boosting confidence in the U.K. economic recovery.
– Gold steadied after advancing for two days as investors awaited testimony from Federal Reserve Chair Jerome Powell, and as the House Budget Committee advanced President Joe Biden’s $1.9 trillion pandemic-relief legislation, setting it up to pass the lower chamber by the end of this week.
Chart Focus XAU/USD
Key Points
1. Buy Gold recommendation.
2. Buy Gold at $1800. Stop at $1790.00 and target at $1822.00
3. Passage of a large pandemic-relief stimulus package and assurance from Fed’s chairman Powell to keep interest rate low are both likely to weaken the US dollar.
4. A strong support zone and a bullish MACD trend is a sign of a rising price trend.
Fundamental Comments
1. Likely passage of Biden’s US$1.9 trillion pandemic-relief stimulus package is likely to weaken the US dollar.
2. Powell is expected to provide assurance that the Fed will not respond to higher inflation with an immediate rate hike and this is likely to weaken the US dollar.
Technical Comments
1. Price is likely to test the neckline of an Inverse Head and Shoulder chart pattern with support also provided by the 20EMA and Fibonacci correction point.
2. MACD remains bullish and is rising, hinting of a bullish price trend ahead.
Key Levels
| Support | 1806.05 | 1796.20 | 1786.25 |
| Resistance | 1817.55 | 1826.30 | 1837.60 |
Technical Overview
USD/JPY – Price reached a low of 104.91 this morning and this could be a temporary low. We may see a test to the 20EMA resistance at 105.10 and if price is unable to move above this point, we are likely to see the down trend resume again for 104.40. There is a possibility of price moving up to the support turned resistance line at 105.25 before the downtrend resumes for 104.40. MACD is bearish but Stochastic is rising from the oversold zone.
| Support | 104.90 | 104.40 | 104.00 |
| Resistance | 105.25 | 105.55 | 105.85 |
EUR/USD – We had a buy call yesterday at 1.2100 which was filled when price dropped to a low of 1.2090. Price has moved higher this morning to 1.2176 and we would like to recommend bringing stop loss higher to 1.2125 while keeping profit target at 1.2185. Stochastic is in the overbought zone and MACD is warning with a divergence.
| Support | 1.2165 | 1.2125 | 1.2095 |
| Resistance | 1.2195 | 1.2245 | 1.2285 |
GBP/USD -Price reached a high of 1.4087 and we think the rally could be over. There is likely to be a correction back to 1.3950 or 1.3830 before another rally can begin. Stochastic is in the overbought zone while MACD has a divergence warning. Both momentum indicators are warning of a possible price high but 20EMA is still bullish and hinting of a bullish price trend ahead. We prefer to stand aside for now.
| Support | 1.4045 | 1.3995 | 1.3955 |
| Resistance | 1.4090 | 1.4135 | 1.4180 |
USD/CHF – We had a buy call on this pair which was filled on Friday at 0.8960. Yesterday we had recommended bringing stop higher to 0.8930 while keeping profit target at 0.9035. Price reached a high of 0.9023 and has declined to 0.8947 this morning. Our view remains unchanged and we would recommend keeping orders unchanged as well
| Support | 0.8930 | 0.8890 | 0.8870 |
| Resistance | 0.8965 | 0.8995 | 0.9025 |
USD/CNH -Our buy call from Wednesday remains open. Yesterday, we had brought stop loss higher to cost at 6.4390 while keeping profit order at 6.4790. We would recommend bringing stop higher to 6.4420 and profit target lower to 6.4750. Stochastic is hinting of a price rally but both MACD and 20EMA remains bearish.
| Support | 6.4525 | 6.4420 | 6.4275 |
| Resistance | 6.4625 | 6.4760 | 6.4905 |