FX Commentary – US Dollar Is Up On Inflationary Expectation

Market Talk

– The dollar was up on Friday morning in Asia and set to post a weekly gain. Investors are now beginning to assess the risk that rising US inflation would force the U.S. Federal Reserve to hike interest rates earlier than expected.

– U.S. producer prices released on Wednesday were higher than expected, while the U.S. jobless claims fell to a 14-month low of 473,000 providing evidence of a build-up of inflationary pressure in the U.S., as a strong COVID-19 vaccination program allows for the resumption of economic activity

– The inflation data also spark a renewed uptick in Treasury yields on Wednesday with the benchmark 10-year Treasuries yield surging to 1.69%, helping the US dollar higher against most of its peers.

– The data did, however, fail to budge the U.S. Federal Reserve from its current dovish monetary policy with Fed member Christopher Waller reiterating that the spike in inflation will be temporary.

– Gold was down on Friday morning in Asia as investors digested a record low number of jobless claims and a higher-than-expected producer price index. A firmer dollar and rising US Treasury yields dampened the metal’s safe-haven appeal.

Chart Focus USD/JPY
Key Points

1. Buy USD/JPY recommendation.
2. Buy USD /JPY at 109.30. Stop at 108.95 and profit target at 109.90.
3. A firmer dollar, rising US Treasury yields and recovery in the US equity market are keeping the US dollar strong.
4. A strong price support and a bullish MACD are likely to send price higher.

Fundamental Comments
1. A firmer dollar and rising US Treasury yields are both aiding the US dollar.
2. A recovery in US equity market is denting demand for the safe haven yen

Technical Comments
1. Price is likely to be supported by the previous resistance turned support line and the 20EMA.
2. MACD remains bullish and is hinting of a bullish price trend ahead.

Key Levels


Technical Overview
NZD/USD – Price reached a low of 0.7134 on Thursday after declining from a high of 0.7304 but we do not think the downside is completed. Price is likely to do a corrective rally higher to 0.7210 as Stochastic is rising after reaching a oversold zone. From there, we are likely to see another decline to the previous low of 0.7115. A move above 0.7255 would negate our bearish view.


EUR/USD – We had a sell call on this pair at 1.2130, which was filled on Wednesday when price reached a high of 1.2152. Price has declined to a low of 1.2050 overnight, missing our profit target at 1.2045. Our view remains unchanged but we would recommend bringing stop lower to 1.2115 while keeping profit target at 1.2045. Stochastic is near to the oversold zone but MACD remains bearish and 20EMA likely to keep price rally at 1.2100.


GBP/USD – Price reached a high of 1.4166 on Tuesday, which was also the 261.8% of the rally from 1.3800 to 1.3930. Price has declined to a low of 1.4005 last night and we think price may have reached a temporary low as MACD and Stochastic have both given divergence warning of a price low. Price is likely to head towards 1.4100 in a correction over the next couple of days.


XAU/USD – Price had reached a low of $1808.60 on Thursday night and we think this could be a temporary low. Stochastic and MACD had each given a divergence warning of a potential price low in the making. 20EMA has also turned bullish. If price can hold above $1808, we think price is likely to test $1845 again in the next couple of days with a possibility of going higher to $1855.


AUD/USD – We had a buy call on Tuesday at 0.7815 which was stop out on Wednesday night when price declined below 0.7780. Price has reached a low of 0.7687 on Thursday night but the downtrend may not be over as yet. While Stochastic is rising from the oversold zone, MACD remains bearish. 20EMA is also hinting of a bearish price trend ahead. We think price is likely to be capped by the 20EMA at 0.7755 and we are likely to see another decline to 0.7640 in the next few days.


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