FX Commentary – US Dollar Weaker On Lower Treasury Yields

Market Talk

-The dollar was down on Wednesday in Asia as U.S. 10-year Treasury yields fell to 1.513%, its lowest level in a month, and down a quarter of a percentage point from a 14-month peak of 1.776% hit in March and investors bet the Federal Reserve is some way off from tapering its economic stimulus.

– The Chinese yuan edged higher to 6.3950 after Chinese Consumer Price Index (CPI) for May, released earlier in on Wednesday, missed forecasts, contracting 0.2% month-on-month and growing 1.3% year-on-year.  However, Producer Price Index (PPI) exceeded expectations by growing 9% year-on-year.

– U.S.-China relations are also back in the spotlight as the U.S. Senate passed a bill to counter the economic as well as strategic challenge from China. The U.S. Innovation and Competition Act of 2021 bill to invest almost $250 billion in bolstering U.S. manufacturing and technology was passed on Tuesday.

– The euro was steady at 1.2179 in the Asia session, while the dollar held at 109.47 yen. The Australian and New Zealand dollars were firmly entrenched in narrow bands, with the Aussie at 0.7741 and the kiwi at $0.7197.

– Gold prices held steady on Wednesday as bond yields remained under pressure, with investors on the sidelines with Thursday’s CPI expected to provide more clues on when the Federal Reserve will dial back monetary stimulus.

Chart Focus USD/JPY
Key Points
1. Sell USD/JPY recommendation.
2. Sell USD/JPY at 109.55. Stop at 109.95 and profit target at 108.75
3. A drop in US 10-year Treasury yields and bet that the Fed is not about to taper are both weighing on the US dollar.
4. Price is capped by the 20EMA with both the 20EMA and MACD hinting of a bearish price trend ahead.

Fundamental Comments
1. U.S. 10-year Treasury yields fell to 1.513%, its lowest level in a month, weighing on the dollar.
2. Investors bet the Federal Reserve is some way off from tapering its economic stimulus and this is likely to weigh on the US dollar.

Technical Comments
1. Price is capped by the 20EMA, which is hinting of a bearish price trend ahead.
2. MACD remains bearish and is hinting of a bearish price trend ahead

Key Levels


Technical Overview
USD/CNH – After reached a low of 6.3522, price has been moving higher but the rally has been capped by the 20EMA at 6.4100. MACD remains bearish and is hinting of a bearish price trend ahead. 20EMA is also bearish and pointing lower. However, Stochastic is still rising from the oversold extreme. We think the 20EMA should cap the rally and another decline to test 6.3522 is likely within the next 2-3 days.


EUR/USD – Our short position from Monday is still pending. We had placed stop at 1.2205 and profit target at 1.2065. We will keep them for today. Stochastic has turned down and is moving lower, hinting of a possible price high. However 20EMA is neutral. MACD remains bearish but is near to the zero line and is not hinting of a strong trend. We will keep the position and re-evaluated again tomorrow.


GBP/USD – Yesterday we had another Inside Day chart pattern, which is a sign of a consolidation. We are expecting price to remain within this range until there is breakout. We are expecting the breakout to happen within the next 48 hours as this type of pattern does not continue for more than 4 days. We prefer the upside as Stochastic is climbing up and MACD remains bullish. 20EMA has turned bullish.


XAU/USD – Price tested $1903.50 for a second time on the same day but was unable to break above this resistance. Price has since moved below $1900 but had managed to stay above the strong support at $1875. We are likely to see price stay within this range for the next 24 hours until there is a breakout of either boundary. Stochastic is rising but both 20EMA and MACD are hinting of a sideways movement.


NZD/USD – We had a buy call at 0.7210 yesterday, which was filled when price declined to a low of 0.7184. Our view remains unchanged. We would recommend keeping stop at 0.7170 and profit target at 0.7300. Stochastic is about to turn up from the oversold extreme. However, both MACD and 20EMA remains mildly bearish at the moment.


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