FX Commentary – US Dollar Softer After ISM Data

Market Talk

– The dollar nursed losses on Tuesday after an unexpected slowdown in U.S. manufacturing growth prompted investors to trim bets that a booming U.S. economy that could boost the greenback.

– Data showed shortages of basic materials and transport snarls depressed the Institute for Supply Management manufacturing survey by 4.7 points to 64.7, sending the greenback tumbling from a three-week peak on the yen and a two-week high on the euro.

– Benchmark ten-year U.S. Treasury yields fell 2.5 basis points 1.578% on Monday following the ISM miss and  Powell’s comment that the U.S. economy is gradually recovering from the COVID-19, but is “not out of the woods yet.

– Sterling was perched near a week-high on the euro and had overnight punched through its 20-day moving average against the dollar to sit at $1.3905 as traders reckon the Bank of England may announce a slowdown of its bond purchases at its Thursday meeting.

– Gold was down on Tuesday morning in Asia, after hitting an over two-month high of $1797.75 during the previous session, as the dollar recovered and investors digested U.S. Federal Reserve Chairman Powell’s optimistic comments on the economy.

Chart Focus XAU/USD
Key Points
1. Buy Gold recommendation.
2. Buy Gold at $1780. Stop at $1770.90 and target at $1798.00.
3. Declining US benchmark yields and lower expectations of US economic growth are both likely to weigh on the US dollar.
4. Price is likely to be supported by the 20EMA and MACD is hinting of a bullish price trend

Fundamental Comments
1. Benchmark ten-year U.S. Treasury yields retreated on a weaker ISM data is likely to weigh on the US dollar.
2. Lower expectations of US economic growth is likely to weigh on the US dollar.

Technical Comments
1. Price is likely to be supported by the 20EMA as well as a previous support level.
2. MACD remains bullish and is hinting of a bullish price trend.

Key Levels


Technical Overview

USD/JPY – Price broke above to the Fibonacci 62% correction point at 109.63 to reach a high of 109.69 on Monday but has declined to 108.89. The decline was halted by the 20EMA and price has since moved higher to 109.26. As long as price stays above the 20EMA, we are likely to see a test of the previous high at 109.69 again. MACD and 20EMA remain bullish supporting our bullish view.


EUR/USD – Price had declined to 1.2010 on Monday morning which is near to a critical support zone from 1.1990 to 1.2000. Price managed to move above this support but the rally was capped by the 20EMA and Fibonacci 50% correction point at 1.2075. MACD and 20EMA remain bearish while Stochastic remains weak. We think price is likely to hold below 1.2075 and test the low of 1.1990 again in the next 48 hours.


GBP/USD – Price reached a low of 1.3800 on Monday morning and has since rallied to 1.3931. There is a possibility that 1.3800 could be part of a bigger correction as MACD remains bearish but Stochastic is rising after a bullish crossover. 20EMA is neutral at the moment. Price could go either way today and we would prefer to stay aside for today wait for a better and clearer direction.


USD/CAD – We had a buy recommendation at 1.2280 from Friday and yesterday, we had shifted stop higher to 1.2260 while keeping profit order unchanged at 1.2365. We would recommend keeping order unchanged for today. MACD is moving higher but remains in the bearish zone. Stochastic is also trying to move higher from the oversold zone. 20EMA remains bearish.


NZD/JPY – Our buy call yesterday at 78.40 was filled when price declined to a low of 78.29. MACD has turned bearish but Stochastic has a bullish crossover and is moving higher, hinting of a bullish price trend ahead. 20EMA has turned bearish. Indicators we used are mixed at the moment and we will keep to our view as well as stop and profit orders from yesterday unchanged.


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