FX Commentary – US Dollar Slip On Fed’s Supportive Monetary Policy

Market Talk

– The US dollar slid after the Federal Reserve kept interest rates unchanged in the range of 0% to 0.25% and maintains its monthly bond-buying at US$120 billion as expected but acknowledged the improvement in the U.S. economy.

-Fed’s Chairman Jerome Powell said now is not the time to discuss tapering bond purchases as the economy is still far from meeting the U.S. central bank’s employment and inflation goals.

– However many analysts say the Fed as likely to begin hinting toward a taper announcement in the coming months in order to prepare the market for a reduction in bond purchases that could begin later this year.

– The US dollar weakened against the yen to 108.43 and the euro gained to 1.2147 following the Fed’s decision to maintain supportive policies. The Canadian dollar hit a 3-year high against the US dollar

– Gold gained, as the greenback and U.S. Treasury yields eased after the U.S. Federal Reserve kept interest rates unchanged and re-affirmed its accommodative policy to support the economic recovery and appears to be in no rush to rein in its accommodative stance even as vaccine rollouts and fiscal stimulus have bolstered the recovery.

Chart Focus AUD/USD
Key Points
1. Buy AUD/USD recommendation.
2. Buy AUD/USD at 0.7770. Stop at 0.7735 and profit target at 0.7845.
3. A decline in US Treasury yield and Fed’s easy monetary policy are both likely to weigh on the US dollar.
4. 20EMA and Stochastic are both hinting of a price rally with MACD bullish as well.

Fundamental Comments
1. Federal Reserve current monetary policy is likely to keep the US dollar weak.
2. A decline in US Treasury yield is likely to weigh on the US dollar.

Technical Comments
1. Price is supported by the 20EMA which is hinting of a bullish price trend ahead.
2. Stochastic has a bullish crossover and is hinting of a bullish price trend ahead.

Key Levels

Support0.77700.77350.7690
Resistance0.78150.78500.7885

Technical Overview

USD/JPY – Price broke above to the Fibonacci 38% correction point at 108.80 and could be heading to the Fibonacci 50% correction point at 109.20. Our view remains unchanged. The high overnight was 109.05 and there was a price correction lower to 108.43 and we are likely to see price heads towards 109.20 within the next 48 hours. Stochastic is rising from the oversold zone. MACD is also rising after a bullish crossover but remains bearish. A move below 108.10 would negate our bullish view for 109.20.

Support108.40108.10107.75
Resistance108.85109.20109.60

EUR/USD – Price declined close to the lower edge of the downtrend channel but managed to stay within the 3-weeks trend channel. Price rallied from the channel support to a high of 1.2149. We are expecting price to continue its movement higher to 1.2180 in the next couple of days ahead. Stochastic is rising and MACD remains bullish. 20EMA is also hinting of a bullish price trend.

Support1.21151.20851.2055
Resistance1.21501.21801..2220

GBP/USD – Our buy entry was filled Monday at 1.3885 and yesterday we had recommended keeping stop at 1.3850 and profit order at 1.3995. Price reached a low of 1.3860 and has rallied to a high of 1.3976 this morning. Our view remains unchanged but we would recommend lifting stop higher to 1.3920 while keeping profit target at 1.3995. MACD remains bullish and Stochastic is still moving higher. 20EMA is also hinting of a bullish price trend.

Support1.39251.38901.3855
Resistance1.39751.40101.4055

XAU/USD – We saw a decline yesterday in price to $1762.53 and a rally from there to $1789.73 this morning. However, this rally was capped by the previous rising trend channel, keeping the bearish trend intact at the moment. Price will need to move above $1790 to regain its bullish impetus. Else, there is a danger we might see a decline back to $1762. MACD is neutral but Stochastic is still rising after a bullish crossover near the oversold zone. 20EMA is also flat and neutral.

Support1776.301754.101741.15
Resistance1788.651797.851815.60.

USD/CHF – Yesterday, we had a buy call on this pair but we were wrong on this call and lost 35 pips. Price declined following the FOMC decision and Powell remarks. Stochastic is still declining and MACD remains in the bearish zone. 20EMA is also hinting of a bearish price trend ahead. The next strong price support comes in at 0.9030-9040.This is also the Fibonacci 62% correction point of this year rally from 0.8740 to 0.9471.

Support0.90750.90300.9000
Resistance0.91000.91400.9180

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