FX Commentary – US Dollar Weaker On Easy Monetary Policy Expectation

Market Talk

– The dollar edged lower on Monday amid speculation that U.S. Federal Reserve Chairman Jerome Powell will shun talk of tapering bond purchases at a policy meeting this week despite an improving economic outlook.

-Rising coronavirus vaccination rates in the U.S. and an improving economic outlook are reasons to be optimistic, but many traders and analysts say Powell is likely to reiterate his commitment to keep easy policy in place for an extended period.

– The euro rose to $1.2116, adding to gains made on Friday after positive data on European services and manufacturing activity. A survey from Germany’s Ifo institute due later on Monday is expected to show business conditions continued to improve in Europe’s largest economy.

– The Australian and New Zealand dollars rose toward one-month highs but are likely to track moves in global commodity prices, traders said. The greenback traded down to 107.73, which was close to its lowest level against the Japanese currency since Mar. 4

– Gold was up on Monday morning in Asia as the US  dollar weakened and investors await the U.S. Federal Reserve due to be handed down later in the week. A retreat in US bond yield also helped the yellow metal.

Chart Focus GBP/USD
Key Points
1. Buy GBP/USD recommendation.
2. Buy GBP/USD at 1.3885. Stop at 1.3850 and profit target at 1.3995.
3. A retreat in US bond yields and expectation of easy monetary policy are both likely to keep the US dollar weak.
4. Price’s ability to hold above an important support and a bullish Stochastic are both signs of a bullish price trend ahead.

Fundamental Comments
1. Expectation that the Federal Reserve will keep its easy monetary policy in place for an extended period of time is likely to weigh on the US dollar.
2. A retreat in US bond yields is likely to weigh on the US dollar.

Technical Comments
1. Price managed to hold above the Fibonacci 62% correction point of the rally from 1.3760 to 1.4010 is an indication of an uptrend.
2. Stochastic is hinting of a bullish price trend ahead.

Key Levels


Technical Overview

USD/JPY – We saw a decline to 107.47 on Friday night but price was able to bounce right up again. However, the rally was capped by the 20EMA at 108.15. Price will need to move above this resistance to regain its bullishness. Momentum indicators have been hinting with divergence of a price low. Stochastic is moving higher away from the oversold zone. MACD and 20EMA remain bearish.


EUR/USD – Price broke above 1.2079 last Friday and has moved to a high of 1.2116 this morning. Stochastic is on the overbought zone but MACD remains bullish. 20EMA is also bullish and moving higher with a steep slope, which is a hint of a bullish price trend ahead. If price stays above 1.2079, we are likely to see a rally to test a strong resistance at 1.2180 in the next couple of days ahead.


NZD/USD – We had a buy call on this pair last Friday. Unfortunately, price declined to a low of 0.7164, just ahead of our entry order at 0.7160 and our trade idea was not filled. Price has since moved higher to 0.7220. We are expecting price to test the previous high of 0.7225 and a break of this resistance is likely to send price higher to 0.7270. However, momentum indicators are hinting of a price high and a likely decline in price.


XAU/USD – Price is currently holding just above a 2-month uptrend channel and a break of this channel is likely to send price lower to either $1748 or $1735 in the next few days ahead. However, if price can hold above the channel low at $1773, we can see a test of $1797 again. MACD is about to turn bearish but Stochastic is about to have a bullish crossover just above the oversold zone. We are inclined towards the bearish side.


XAG/USD – Our buy order was filled at $26.15 last Thursday but our stop was triggered at $25.85 when price dropped to a low of $25.84 last Friday. Stochastic has continued to move lower but MACD remains bullish at the moment. However, 20EMA has turned bearish and is hinting of a bearish price trend ahead. Price has also failed to move above the uptrend line at $26.15. If price stays below this resistance, we are likely to see price moving down to $25.60 or $25.15 in the next few days.


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