FX Commentary – US Dollar Firmer As U.S. Treasury Yield Rose

Market Talk
– The U.S. dollar held firm on Monday morning after bouncing off a one-week low following a spike in benchmark Treasury yields to 1.628% last Friday, to near 13-month highs as investors bet U.S. economic growth will accelerate after the passing of a massive stimulus package.

– U.S. producer prices had their largest annual gain in nearly 2-1/2 years, data showed on Friday, while the country’s economy is set to get a massive shot in the arm from President Joe Biden’s $1.9 trillion stimulus package. Market participants have grown wary in recent weeks that massive fiscal stimulus and pent-up consumer demand could lead to a jump in inflation as expanding vaccination campaigns bring an end to lockdowns.

– The euro was mostly unchanged at $1.19535, consolidating just below $1.20 after sliding to a three-month trough of $1.18355 last week. The dollar was largely flat at 109.04 yen on Monday, near the nine-month top of 109.235 reached last week.

– The Canadian dollar was largely flat on Monday’s morning trade, after earlier strengthening to C$1.2454 for the first time in three years. On Friday, a bigger-than-expected domestic jobs gain supported the view that the Bank of Canada would reduce quantitative easing purchases next month.

– Gold prices edged higher on Monday as the passage of the latest U.S. stimulus package continued to stoke fear of inflation and weakness in equity markets offset pressure from a strong US dollar and rising U.S. Treasury yields

Chart Focus AUD/USD
Key Points
1. Sell AUD/USD recommendation.
2. Sell AUD/USD at 0.7745. Stop at 0.7780 and target at 0.7625.
3. Rising U.S. Treasury yields and jump in US PPI are both favouring the U.S. dollar against the Aussie.
4. Price is capped by the Fibonacci 50% correction point with Stochastic hinting of a bearish price trend ahead.

Fundamental Comments
1. Rising U.S. Treasury yields are in favour of the U.S. dollar.
2. Largest annual gain in U.S. Producer Price Index in nearly 2-1/2 years is a hint of inflation which is likely to favour the U.S. dollar.

Technical Comments
1. Price has moved below the 20EMA after being capped by the Fibonacci 50% correction point.
2. Stochastic is moving lower after a bearish crossover, hinting of a bearish price trend ahead.

Key Levels


Technical Overview

USD/JPY – Last Friday, our buy recommendation was not filled as price rose to a high of 109.16 without a pullback. While price rose, MACD is starting to show weakness and is hinting of a potential top in the process of forming. Stochastic is also into the overbought zone. 20EMA is pointing up with a steep slope and is hinting of a bullish price trend ahead. A move above 109.25 is likely to lead to a test of 110.


EUR/USD – The rally reached a high of 1.1989 last Thursday and a strong resistance at 1.1995 managed to cap the rally. Price had declined to 1.1909 on last Friday’s night but price has rallied to 1.1968 on Monday’s morning trade. Stochastic is turning down after a bearish crossover and MACD is bearish after a bearish crossover. Both momentum indicators are hinting of a price decline to 1.1900.


GBP/USD – Price had rallied to a high of 1.4004 last Friday’s morning and we believe that this could be a temporary top. Price had declined lower to 1.3863. We do not think this is the low and a price decline to 1.3775 is likely. Stochastic is moving lower from the overbought zone. MACD remains bullish but looks weak. 20EMA is neutral at the moment. We prefer a movement lower.


XAU/USD – We had a buy order that was filled on last Thursday at $1726.40. Last Friday, we had raised stop higher to $1718.90 which was triggered when price drop below $1700. We lost $7.50 on this trade. Price had risen to a high of $1733.93 this morning and may continue to rise higher. Stochastic had a bullish crossover and is rising but has not reached the overbought zone as yet. MACD remains bullish and is rising and moving away from the zero line while 20EMA is hinting of a bullish price trend ahead.


USD/CAD – Price has reached a low of 1.2454, which is a 3-year low this morning. Stochastic has reached its extreme point and MACD is also turning up. Both momentum indicators are hinting of a price low and a rally lies ahead. However, 20EMA is pointing lower with a steep slope, which is a hint of a strong bearish price trend ahead. We view this impending rally as a correction and a downtrend is likely to resume once the corrective rally is over.


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