FX Commentary – US Dollar Weaker As US Treasury Yield Declined

Market Talk

– The dollar was pinned near a one-month low to major peers on Monday, with Treasury yields hovering near the lowest in five weeks, after the U.S. Federal Reserve reiterated its view that any spike in inflation was likely to be temporary. Improved risk sentiment amid a rally in global shares to record highs also capped gains for the U.S. currency.

–  U.S. Fed Governor Chris Waller told CNBC on Friday that the U.S. economy “is ready to rip” as COVID-19 vaccinations continue and economic activity picks up. He also added that a rise in inflation is likely to be transitory, echoing comments from other Fed officials including Chair Jerome Powell during the previous week.

– US 10-year Treasury yield sank to as low as 1.528% during the previous week from a 14-month high of 1.776% at the end of March, reducing the appeal of the U.S. dollar as an investment.

– The greenback bought 108.74 yen, near the lowest since March 24. The euro changed hands at $1.1956, near the highest since March 4, while the British pound pair inched up to 1.3837.

– Gold was down on Monday morning in Asia but remained near the seven-week peak hit during the previous session as retreating U.S. Treasury yields boosted demand for the safe-haven yellow metal.

Chart Focus USD/JPY
Key Points
1. Buy USD/JPY recommendation.
2. Buy USD/JPY at 108.40. Stop at 108.05 and profit target at 109.40.
3. An improvement in risk sentiment and interest rate differential are both against the yen.
4. Price has reached a strong support with MACD hinting of a possible price low in the process of forming.

Fundamental Comments
1. An improvement in risk sentiment is likely to weigh on the Yen.
2. Interest rate differential is in favour of the US dollar

Technical Comments
1. Price has reached an important and strong support level which is likely to halt the decline.
2. MACD is showing divergence and warning of possible price low in the process of forming.

Key Levels


Technical Overview

AUD/USD – We had a buy recommendation at 0.7705 on Friday but price only reached a low of 0.7706 and our entry order was not filled. Price has moved higher to 0.7735 this morning and we are expecting price to move higher to 0.7770 in the next 48 hours. MACD is bullish and is hinting of a bullish price trend ahead but Stochastic is declining after reaching the overbought zone. 20EMA is bullish and we are inclined to go with the bullish trend.


EUR/USD – Price was capped by resistance at 1.1990 and we saw a decline to 1.1941 this morning which broke the 20EMA briefly. Price has managed to recover and a break above 1.1995 would send price higher to 1.2060. However an inability to move above 1.1990 would call for a decline to 1.1860. MACD is warning with a bearish divergence and Stochastic has been declining since a bearish crossover earlier. 20EMA is neutral.


GBP/USD – Price broke above 1.3805 last Friday and has reached a high of 1.3867 this morning. MACD remains bullish and is hinting of a bullish price trend ahead. Stochastic has a bullish crossover and is hinting of a bullish price trend. 20EMA is also hinting of a bullish price trend. We are expecting the rally to continue towards 1.3920 and a possibility of a possible extension to 1.3975.


XAU/USD – Price broke above $1758.50 last Thursday and reached a high of $1783.58 on Friday. This morning we saw a test which registered a high of $1783.38 but Stochastic was declining while price was rising, which is not a good sign. However both 20EMA and MACD remain bullish and is hinting of a continuation of this bullish trend. A price move below $1771.60 would confirm a Double Top chart pattern and calls for a test of $1758.50.


XAG/USD – We had a buy recommendation at $25.45 from Thursday and we had shifted stop higher to $25.40 while keeping profit target at $26.10. Last Friday, price reached a high of $26.29, filled our profit order. Stochastic is declining after a bearish crossover. MACD remains bullish and 20EMA is supporting price at the current moment. If price stays above $25.60, we may see another rally to test $26.62.


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