FX Commentary – US Dollar Weakened On Treasury Yields Retreat

Market Talk
– The safe-haven U.S. dollar remained broadly weaker on Wednesday, retreating from a 3 weeks high as U.S. Treasury yields continued to retreat, restoring some calm to global markets and reigniting demand for riskier assets.

– Bonds have been at the center of a storm in financial markets in recent weeks, following a dramatic jump in yields globally in defiance of central bankers’ insistence on patience in normalizing monetary policy as economies recover from the COVID-19 pandemic.

– The Australian dollar, held on to sizeable two-day advances as US Treasury yields fell. Positive Australian economic data earlier on Wednesday’s morning saw GDP grew 3.1%, providing additional support for the Aussie dollar.

– China’s February Caixin PMI Services came in at 51.5, within expectation but below January’s 52.0 while core PMI came in at 51.7 against January reported 52.2. Both PMIs in China slipped in February but were still well into expansion mode.

– Gold prices rose, as a retreat in the dollar and U.S. Treasury yields lifted demand for the yellow metal. Progress of Biden’s US$1.9 billion US stimulus package, which is expected to be passed by Senate later in the week, could also boost the yellow metal.


Chart Focus XAU/USD – Gold
Key Points
1. Buy Gold recommendation.
2. Buy Gold at $1724.60. Stop at $1714.00 and target at 1758.00.
3. A retreat in US Treasury yields and passage of Biden’s US$1.9 billion stimulus package are both likely to boost Gold.
4. Price may have hit a bottom and there could be a reversal with MACD hinting with a divergence of a potential price low.

Fundamental Comments
1. A retreat in U.S. Treasury yields is lending support to a stronger Gold price.
2. Biden’s US$1.9 billion US stimulus package, which is expected to be passed by Senate later in the week could also boosted Gold.

Technical Comments
1. Price may have hit a bottom and there could be a reversal ahead.
2. Stochastic is moving higher while MACD has a divergence warning of a potential price low.

Key Levels

Support1727.401719.901707.05
Resistance1740.201753.551766.75

Technical Overview
USD/JPY – The price rally continues for another day and price has now reached a high of 106.95. MACD remains bullish but is near to its extreme. Stochastic is in the overbought zone and is turning down after a bearish crossover. However, 20EMA is bullish and rising with a steep slope, hinting of a bullish price trend ahead. There is a good chance of the uptrend extending higher to 107.05 over the next 1-2 days but this could be the final destination of the rally.

Support106.50106.20105.80
Resistance106.95107.25107.55

EUR/USD – Price had reached a low of $1.1991 yesterday and had bounced higher to 1.2094. Stochastic is rising but MACD remains bearish. MACD is also hinting of a price decline ahead. 20EMA is neutral at the moment. If price is capped at 1.2095, we think price can decline back to 1.1990. A movement above 1.2095 is likely to extend higher to 1.2150.

Support1.20601.20201.1990
Resistance1.20951.21251.2150

GBP/USD – We had a sell call on this pair at 1.3995 on Monday and yesterday we had recommended bringing stop lower to 1.3915 while keeping profit target at 1.3830. Unfortunately our stop was hit and we are out of this position with an 80 pips profit. MACD had warned with a divergence, hinting of a possible price low. Stochastic had a bullish crossover and is hinting of a price rally ahead. 20EMA is neutral at the moment. We think price can go higher to 1.4095 again over the next few days.

Support1.39301.38901.3855
Resistance1.39751.40051.4060

XAG/USD – Yesterday, price had dropped to a low of $25.39 but had bounced back up in the form of a Hammer candlestick price pattern, which is an indication of a possible price low in place. Price had since moved higher to $26.89. MACD is moving up after a bullish divergence and Stochastic is rising. However, 20EMA is still bearish. We think price can continue to move higher if price can hold above $26.30. We see price going up to $27.05.

Support26.4026.1025.80
Resistance26.7527.1027.55

USD/CAD – We had a buy call on this pair yesterday but we were stopped out last night when price dropped to a low of 1.2599, taking out our stop at 1.2610. We lost 40 pips on this trade. Our view remains the same. We view this decline as part of a correction and we think the US dollar will continue to move up to 1.2800 over the next few days. A move below 1.2560 would negate our bullish view. MACD remains bullish. Stochastic is near to the low and hinting of a limited downside. 20EMA is neutral at the moment.

Support1.26151.25851.2545
Resistance1.26551.26951.2735

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