FX Commentary – US Dollar Softer As Investors Reduced Bets on Fed’s Tapering

Market Talk

– The dollar was up on Monday morning in Asia but remained near its lowest level in three months as traders pared earlier bets the Federal Reserve may move soon to taper its stimulus though markets were not fully convinced that higher U.S. inflation is transient.

– The euro traded at $1.2179 on Monday and was off a three-month high of $1.2245 touched on Wednesday after the euro and other European currencies had been bolstered by rising optimism about economic re-openings in the region from coronavirus lockdowns.

– A preliminary purchasing managers’ index covering the 19-country euro zone’s dominant service industry, published on Friday, bounced to 55.1 from April’s 50.5, well above expectations and its highest since June 2018. However the single currency was capped by comments from ECB President Christine Lagarde’s comment on Friday that it is still too early for the bank to discuss winding down its 1.85 trillion euro emergency bond purchase scheme.

– The British pound stood at $1.4144, off Friday’s three-month peak of $1.4233. The yen was little moved at 108.92 per dollar, trapped between a high of 109.78 hit after a strong U.S. inflation data and a low of 108.34 in the wake of soft U.S. payrolls data, both touched earlier this month.

– Spot gold had inched lower on Friday night as the dollar rebounded after robust U.S. manufacturing data but price was up on Monday morning as traders’ concerns about taper talk in U.S. Federal Reserve minutes moderated.

Chart Focus USD/CNH
Key Points
1. Sell USD/CNH recommendation.
2. Sell USD/CNH at 6.4340. Stop at 6.4470 and target at 6.4070.
3. Expectation of low interest rate for a prolong period of time and a slight decline in US Treasury yields are both weighing on the US dollar.
4. Price is capped by a downtrend line which is hinting of a bearish price trend with MACD also hinting of a bearish price trend.

Fundamental Comments
1. Expectations that Fed will keep interest rate low for a prolong period of time is weighing on the US dollar.
2. A decline in US Treasury yield is also weighing on the US dollar.

Technical Comments
1. Price was capped by a price resistance as well as a 6-week downtrend line.
2. MACD has a bearish crossover and is hinting of a bearish price trend ahead.

Key Levels


Technical Overview

USD/JPY – We had a sell call last Friday which was filled at 108.90 when price reached a high at 109.00. Our view remains unchanged. We would recommend bringing stop lower to cost at 108.90 while keeping profit target at 108.35. 20EMA remains bearish and is hinting of a bearish price trend ahead. MACD remains bearish but is near to the zero line, hinting of mild bearish trend.. Stochastic is neutral at the moment after moving out of the oversold zone.


EUR/USD – Price failed to move higher to 1.2285 on Friday, reaching a high of 1.2240 which was similar to last Tuesday’s high. Price declined on Friday night to a low of 1.2160, which we will take as a completed correction. If we are right on this scenario, we are expecting price to move higher and test the previous high of 1.2240 again within the next few days. MACD could be turning around the zero line. Stochastic is also about to see a bullish crossover. A move above the 20EMA resistance at 1.2195 would confirm the move towards 1.2240 with 1.2285 a possibility.


GBP/USD – Price made a higher high at 1.4233 on Friday but this high was accompanied by divergence warnings from both the MACD and Stochastic indicators. This is a warning that price could be near to a high and a reversal is likely. We think price could be making a diagonal triangle pattern and we could see another test to 1.4233 before the reversal. MACD and Stochastic are both pointing lower. 20EMA is flat and neutral at the moment.


XAU/USD – Price has been trading within last Wednesday’s Outside Range Day. This range day has a high at $1889.85 and a low at $1851.85. Price reached a high of $1889.20 but was not able to break above the Outside Day’s high. We are likely to see price test the high again within the next 48 hours. A break will lead price higher but failure is likely to see a price decline lower to $1851. Stochastic and MACD are neutral while 20EMA remains bullish. Watch the breakout for clue.


NZD/USD – Price may have test the low at 0.7150 on two occasions but there are no signs of a reversal as yet. Instead, price could test and break the low of 0.7150 within the next 1-2 days to complete the decline. 20EMA remains bearish and is hinting of a bearish price trend ahead. MACD is also bearish. Stochastic is still moving towards the oversold zone and is hinting price could still move lower in the next couple of days ahead. Watch the break of support at 0.7150 for clue.


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