FX Commentary – US Dollar Supported By A Strong US PPI Data

Market Talk

– The dollar rose against a basket of currencies, paring some of the week’s losses, as a stronger-than-expected rise in U.S. and China’s inflation gauges drove up bond yields, powered by bets that an accelerating U.S. recovery from the pandemic will lift inflation faster than Federal Reserve policymakers anticipate.

– Treasury yields rose after higher-than-expected producer prices data for March that showed inflation perked up, in line with other upbeat reports that suggested the world’s largest economy was on a stable path to recovery from the pandemic.

– Data on Friday showed the largest annual gain in 9-1/2 years for U.S. producer prices, backing expectations for higher inflation as the economy reopens amid an improved public health environment and massive government funding.

– Against the euro, the dollar hovered near the lowest since March 23 at $1.1901 while the British pound pair edged down to 1.3691. The greenback bought 109.66 yen, close to a two-week low below 109 reached on Thursday.

– Gold was down on Monday morning in Asia thanks to climbing U.S. Treasury yields and a strengthening greenback. Both the greenback and bond yields have climbed after US PPI came in above expectation.

Chart Focus XAG/USD -Silver
Key Points
1. Sell XAG/USD recommendation.
2. Sell XAG/USD at $25.15. Stop at $25.65 and target at $24.05.
3. A strong US PPI data and rising US Treasury yields are both supporting the US dollar.
4. Price has failed to penetrate above the Fibonacci 62% correction point and momentum indicators are hinting of a bearish price trend ahead.

Fundamental Comments
1. A strong US PPI data is fuelling fears higher inflation which is aiding the US dollar.
2. A climbing US Treasury yield is also aiding the US dollar.

Technical Comments
1. Price had failed to penetrate above the Fibonacci 62% correction point which could lead to a price decline.
2. Stochastic and MACD are both warning of a price decline ahead.

Key Levels


Technical Overview

USD/JPY – Price moved to a high of $109.95 last Friday, which was higher than our anticipated level of 109.70. However we still view the rally as corrective and we think price is likely to decline lower to 108.80 to 108.60 in the next few days ahead. Stochastic is about to have a bearish crossover, hinting of a bearish price trend. MACD remains bearish. Price will need to move above 110.25 to negate our bearish view.


EUR/USD – Price moved sideways on Friday after reaching a high of 1.1926 on Thursday. We think the upside is limited. While the trend as provided by MACD and 20EMA remain bullish, MACD and Stochastic has warned with divergences of a possible price high in the formation. A break of 1.1855 would confirm a Double Tops chart pattern and calls for a price move to 1.1790.


GBP/USD – Price has declined to near the previous low at 1.3670 for a second time today and a break of this support is likely to lead price lower to the Fibonacci 127% price projection target at 1.3490. MACD remains bearish and is hinting of a bearish price trend. Stochastic is close to the oversold extreme and looks weak. 20EMA is pointing lower with a steep slope, which is a sign of a strong bearish trend. Only a price move above 1.3780 would negate this bearish view.


XAU/USD – Price had reached a high of $1758.50 on Thursday and has declined on Friday to $1730.95. We are expecting the decline to continue lower to $1718 in the next couple of days. Stochastic and MACD have both warned with a divergence and 20EMA has turned bearish. Price will need to move above $1758.50 to negate our bearish view for the next couple of days.


AUD/USD – We had a sell recommendation of this pair on Friday which was filled at 0.7605 when price reached a high of 0.7640. Price has declined to 0.7603 at the time of this writing and we are expecting price to decline lower to 0.7530 in the next few days. MACD has turned bearish and is declining. Stochastic had a bearish crossover and is declining as well. We recommend keeping stop and profit orders unchanged.


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