FX Commentary – US Dollar Stronger On Inflationary Pressure

Market Talk

– The dollar held near a two-month high against the yen on Monday after a key measure of U.S. inflation showed stronger price gains than expected, keeping alive expectations of an eventual tapering in the Federal Reserve’s asset buying.

– Consumer prices, as measured by the personal consumption expenditures (PCE) price index excluding the volatile food and energy components, rose 0.7% in April, topping analysts’ 0.6% estimate and after a 0.4% increase in March. PCE is the Federal Reserve’s preferred measure of inflation.

– The Chinese yuan, which has been supported by a strong economic recovery, extended a recent rally to three-year highs at 6.3551 even as Chinese authorities appeared to try to curb its rise.

– The greenback ticked down to 109.64 yen in a trade dominated by month-end dollar selling from Japanese exporters, but stood not far from Friday’s peak of 110.20, which was its highest since early April. The euro was little moved at $1.2203, off Friday’s low of $1.2133, while the British pound barely moved at $1.4199.

– Gold is headed for the biggest monthly advance since July 2020, with inflation risks in focus ahead of key U.S. jobs data later in the week. With key Fed officials now openly acknowledging the need to discuss tapering, longer term prospect for Gold may be limited due to interest rate hike.

Chart Focus USD/JPY
Key Points
1. Buy USD/JPY recommendation.
2. Buy USD/JPY at 109.50. Stop at 109.10 and profit target at 110.20.
3. Inflationary pressure that could lead to a hike in US interest rate and coronavirus situation in Japan are both aiding the US dollar.
4. Price is supported by the 20EMA with the MACD indicator also hinting of a bullish price trend.

Fundamental Comments
1. US inflation data continues to show inflationary pressure and hint of a tapering and interest rate hike.
2. Media report of Japan extending its state of emergency in Tokyo and several other areas to June 20 is weighing on the yen.

Technical Comments
1. Price is supported by the 20EMA which is hinting of a strong bullish price trend.
2. MACD remains bullish and is hinting of a bullish price trend.

Key Levels


Technical Overview
AUD/USD – Price broke below the support at 0.7687 to reach a low of 0.7675 on Friday. This morning, price managed to move up to 0.7730 but the rally was capped by the 20EMA. We do not think the bearish trend is completed. We are looking at another decline below 0.7675 to complete the decline. Stochastic is moving up after a bullish crossover but MACD and 20EMA remain bearish.


EUR/USD – Price reached a low of 1.2131 on Friday but managed to bounce up to 1.2204 this morning. Our view remains the same. We are looking at a price move to 1.2050 over the next few days. Stochastic is rising from the oversold zone but MACD remains bearish. 20EMA remains bearish and is capping price rally. Only a move above 1.2215 would negate our bearish view.


GBP/USD – Price is now nearer to the top of the range and Stochastic is hinting with a bullish crossover that price could be able to move higher in the next 24 hours. However, Stochastic is just below the overbought zone, which is also a hint of a limited upside. MACD is bullish but is flat near to the zero line. 20EMA remains bullish. We see a limited upside and would prefer to wait for better trading idea.


XAU/USD – Price reached a high of $1910.50 this morning but remains below last week high of $1912.55. Price will need to move above last week’s high to regain its bullish trend. Inability to move above is likely to lead to a decline back to $1880. Stochastic continues to rise and is near to the overbought zone but MACD, while bullish could be forming a divergence warning. 20EMA continues to show a bullish price trend.


USD/CAD – We had a buy recommendation which was filled at 1.2070 on Friday as price dropped to a low of 1.2055. Stochastic is starting to move higher after a bullish crossover in the oversold zone. MACD remains bullish but 20EMA is neutral. Our view remains unchanged from last Friday.  We would recommend keeping stop unchanged at 1.2035 and profit target at 1.2140.


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