FX Commentary – US Dollar Weak On Expectation Of Dovish Monetary Policy

Market Talk
– The dollar was down on Tuesday morning in Asia, hitting a six-year low against its Canadian counterpart and hovering close to multi-month lows against European currencies, on renewed expectation that the U.S. Federal Reserve would not hike interest rates for an extended period of time.

– Fed’s member Robert Kaplan on Monday reiterated his view that he does not expect interest rates to rise until 2022, thus sparking a further decline in bets that inflationary pressure could force the central bank to act sooner than expected.

– Japan’s GDP contracted 5.1% year-on-year and 1.3% quarter-on-quarter during the first quarter of 2021 as its consumption has been hit by a slow rollout of the COVID-19 vaccine and a resurgence of COVID-19 cases.

– The Aussie dollar edged up to 0.7791 after the Reserve Bank of Australia released the minutes from its latest meeting earlier in the day, reiterating its policy to maintain very easy monetary policy for some time until 2024 at the earliest.

– Gold was up on Tuesday morning in Asia, rising to its highest in more than three months as concerns over the pace of a global recovery crept back in following a flare up in coronavirus cases in parts of Asia. Easing concerns over interest rate hike led to a weaker US dollar aiding the yellow metal.

Chart Focus XAU/USD – Gold
Key Points
1. Sell Gold recommendation.
2. Sell Gold at $1870. Stop at $1876.00 and target at $1850.
3.  Concerns over the pace of a global recovery and a flare up in coronavirus cases are likely to aid the safe haven US dollar.
4. Price has reached the top end of a 7-week trend channel and momentum indicators are hinting of a possible bearish trend in price.

Fundamental Comments
1. Concerns over the pace of a global recovery is likely to aid the US dollar.
2.  A flare up in coronavirus cases in parts of Asia is likely to aid the safe haven US dollar.

Technical Comments
1. Price has hit the top of a 7-week trend channel and is likely to move back into the channel again.
2. MACD has a divergence warning while Stochastic is in the overbought zone and both are hinting of a possible decline in price.

Key Levels


Technical Overview

USD/JPY – We had a buy call on Friday which was filled at 109.30 and we had kept stop at 108.95 and profit order at 109.90 yesterday. Price continues to move sideways and is currently below a flat 20EMA. MACD is close to the zero line and can be considered neutral. Stochastic is near to the oversold zone and could be turning up. We think price should be moving up soon and would recommend keeping stop and profit orders unchanged.


EUR/USD – Price continues to rise and is currently close to the previous high at 1.2180. A break above this resistance is likely to send price higher to 1.2240. However MACD is starting to warn with divergence. Stochastic also has a divergence warning and had already started to move lower. If price is unable to move above 1.2180 today, we may see a decline back to 1.1990 in the next couple of days ahead.


GBP/USD – Price continues to move higher and has broken above the recent high of 1.4166. However MACD could be forming a bearish divergence, warning of a potential price high. Stochastic is into the overbought zone and could be moving lower. 20EMA is bullish and hinting of a strong bullish price trend. We think price is likely to test 1.4240 before the current bullish trend turned bearish.


AUD/USD – Price has broken above 0.7785 and could be on its way to the Fibonacci 161.8% price projection point at 0.7848 with Fibonacci 200% point at 0.7890 also a possibility as MACD has turned bullish and is continuing to move higher. Stochastic has not yet moved into the overbought extreme. 20EMA is also hinting of a bullish price trend ahead. Only a move below 0.7725 would negate our bullish view for the next couple of days.


NZD/USD – We had a buy call on this pair yesterday at 0.7215. Last night, price declined to a low of 0.7173 taking out our stop at 0.7180. However, our view remains unchanged and price has also move higher to 0.7235 at the point of writing. Price should now test the next resistance at 0.7253 and 0.7295 later. MACD and 20EMA remain bullish. Stochastic is near to the overbought zone.


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