FX Commentary – US Dollar Clung On To Gains On ISM Data

Market Talk

  • The dollar clung to small gains from overnight on Wednesday, edging back from near a five-month trough versus major peers, as a pick-up in U.S. manufacturing activities kept bets alive for a quicker normalization of Federal Reserve policy.
  • Data showed U.S. manufacturing activity picked up in May as pent-up demand in a reopening economy boosted orders. But unfinished work piled up because of shortages of raw materials and labour. People came back from a holiday weekend convinced that the economy is recovering nicely and that any inflation that we might be seeing in labour and other costs is temporary.
  • Some U.S. Federal Reserve officials insisted that the price pressure will be temporary, while some investors remained concerned that potential runaway inflation will eventually force the central bank to change its current dovish monetary policy earlier than expected.
  • The euro traded at 1.2222 after pulling back from near a multi-month top overnight, when it climbed to 1.2254. The Canadian dollar was at 1.2059 per greenback after rallying to a fresh six-year peak of 1.2007 overnight as crude oil rose.
  • Gold was down on Wednesday morning in Asia from the near five-month high hit during the previous session over the release of better-than-expected U.S. economic data and a rise in bond yields.

Chart Focus NZD/USD
Key Points

  1. Sell NZD/USD recommendation.
  2. Sell NZD/USD at 0.7245. Stop at 0.7280 and profit target at 0.7185
  3. Strong U.S. manufacturing activity in May and a rise in US bond yield are both aiding the US dollar.
  4. Price has broken below an uptrend line and MACD is hinting of a bearish price trend.

Fundamental Comments

  1. Strong U.S. manufacturing activity in May is aiding the US dollar.
  2. A rise in US benchmark Treasury yield is aiding the US dollar.

Technical Comments

  1. Price has broken below an uptrend line and 20EMA is also hinting of a bearish price trend.
  2. MACD has turned bearish and is hinting of a bearish price trend.

Key Levels


Technical Overview
USD/JPY – We had a buy call from Monday, which is still pending at the moment. Our view remains unchanged and we would recommend moving stop higher to 109.25 and profit target at 110.20. Stochastic is turning up after a bullish crossover from the oversold zone. MACD is also moving higher and hinting of a bullish price trend. 20EMA is also hinting of a bullish price trend ahead.


EUR/USD – Price moved to a high of 1.2254 last night and we think this could be a temporary high. We see a decline back to 1.2160 or 1.2130 over the next few days ahead. MACD remains bullish but is turning lower. Stochastic has a bearish crossover near the overbought zone and is moving lower and hinting of a bearish price trend ahead. 20EMA is neutral at the moment.


GBP/USD – We had a buy call yesterday but our view was wrong. We lost 30 pips on this trade. Price had reached a high of 1.4250 yesterday and has been declining. Price has reached a low of 1.4150 and is likely to test the uptrend channel support located at 1.4120. A break of this support is likely to send price lower to 1.4005. If price can stay above the uptrend channel support, there is still a chance of another test at 1.4250.


XAU/USD – We saw a break of the previous high at $1912.55 overnight which brought price higher to $1916.45. However, this high was accompanied by divergence warnings from both MACD and Stochastic. This is a hint of a possible price high. 20EMA has also turned bearish. Price has since moved lower to $1897. We are expecting the decline to continue to $1887 over the next few days.


USD/CAD – Our buy recommendation from Friday was stopped out last night at 1.2035. We lost 35 pips on this trade. As crude oil prices continue to rise, the Canadian dollar is likely to get stronger. However, last night we saw a new break lower to 1.2007 but also a strong bounce. The bounce had brought price up to 1.2075. We see this rally continuing to 1.2140 over the next few days.


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