FX Commentary – US Dollar gains As Yields Inched Higher

Market Talk
– The U.S. dollar rose on Wednesday, clawing back some of the losses sustained overnight, as U.S. Treasury yields dropped, pulling back from a recent 13-month high. The recent retreat in yields, after climbing to a 1-year high at 1.625% had allowed riskier currencies such as the pound, Australian dollar and Kiwi dollar to make gains.

– The safe-haven dollar has closely tracked a surge in Treasury yields in recent weeks as higher yields increase the currency’s appeal and as the bond rout shook investors’ confidence, spurring demand for the greenback.

– Bond investors have been selling on bets that a faster-than-expected economic rebound would spark a surge in inflation, with President Joe Biden expected to sign a $1.9 trillion coronavirus aid package into law as soon as this week after the House of Representative voted in favour of the bill .

– Westpac, which as recently as last week was talking about selling the dollar index into 91, now sees it reaching as high as 94.50 before resuming its downtrend as the rest of the world closes the gap with the U.S.’s pandemic recovery.

– Gold was up on Wednesday morning in Asia on the back of a retreat in U.S. Treasury yields and a weaker dollar, staging a strong recovery from the nine-month low it hit in the previous session.


Chart Focus USD/CNH
Key Points
1. Buy USD/CNH recommendation.
2. Buy USD/CNH at 6.5160. Stop at 6.4990 and target at 6.5590.
3. A sell off in bond and rising yields are both likely to keep the safe haven U.S. dollar strong.
4. Price has found support at a strong support zone and momentum indicators are hinting of a bullish price trend ahead.

Fundamental Comments
1. As yields start to creep back towards its 1-year high, it is likely to keep the U.S. dollar strong.
2. Another bond rout is likely to shake investors’ confidence and spurs demand for the U.S. dollar.

Technical Comments
1. Price has found support at a former resistance turned support line and 20EMA line.
2. MACD remains bullish while Stochastic is starting to rise from the oversold zone. Both are hinting of a bullish price trend ahead.

Key Levels

Support0.76450.76150.7580
Resistance0.76900.77250.7750

Technical Overview
USD/JPY – Price had reached a high of 109.22 on Tuesday but that high was accompanied by a divergence warning from MACD. MACD remains bullish but is hinting of a possible price high in the making. Stochastic is declining after a bearish crossover at the overbought zone. However, 20EMA has halted the price decline at 108.41. Unless price moved below 108.40, we are likely to see another rally to test the high of 109.22 over the next couple of days.

Support108.70108.40108.05
Resistance109.00109.35109.60

EUR/USD – We saw a corrective rally to 1.1915 yesterday but MACD remains bearish and is hinting of a bearish price trend ahead. 20EMA is also pointing lower with a steep slope which is a hint of a strong bearish price trend. We think price is likely to head lower and test the previous low of 1.1835 again over the next couple of days. Price needs to move above 1.1920 to negate our bearish view.

Support1.18351.17951.1760
Resistance1.18801.19151.1950

GBP/USD – Price rose to a high of 1.3925 overnight after bouncing from the low of 1.3801. We had expected price to higher to 1.40 but the rally looks weak. MACD remains bearish and Stochastic had a bearish crossover, hinting of a bearish price trend ahead. We think price is likely to test last week low of 1.3778 again over the next few days.

Support1.38351.38051.3775
Resistance1.38851.39251.3970

XAU/USD – Price had declined to a 9-month low on Monday’s night at $1676.54 and has moved higher to $1920.35 overnight. This morning, price has declined to a low of $1709.50. If price can stay above the 20EMA at $1705, we are likely to see another rally to test the resistance at $1729.65. Stochastic is still rising but is near to the overbought zone.

Support1704.201692.251682.45
Resistance1720.351729.701740.10

AUD/USD – We had a buy recommendation at 0.7645 that was filled yesterday when price declined to a low of 0.7642. Price had moved higher to 0.7725 but has declined to 0.7670 this morning. MACD is showing weakness but Stochastic is still rising. Price trend looks sideways at the moment. We would recommend bringing stop higher to 0.7635 and profit target lower to 0.7770.

Support0.76550.76150.7580
Resistance0.76950.77250.7765

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