FX Commentary – US Dollar Hovers Near 5-Month Low Ahead of US Data

Market Talk

– The dollar continued to hover near a five-month low versus major peers on Thursday as investors focussed on U.S. inflation data and the risk of an upside surprise that could prompt the Federal Reserve to start tapering its massive stimulus.

– 10-year Treasury yields which helped to drive the greenback to a multi-year high earlier this year, has taken a sizeable step lower in the past week. Yield has dropped below 1.5% and is close to the lowest since 12 March 2021, dragging the US dollar lower.

– The Bank of Canada on Wednesday left its key interest rate unchanged as expected, and said it would maintain its current policy of quantitative easing. It also reiterated its guidance that rates would remain unchanged until at least the second half of 2022 sending the Canadian dollar lower against the US dollar.

– The Euro was largely flat ahead of ECB’s policy meeting today that is widely expected to keep policy settings steady at its meeting later today. The yen traded at 109.62 per dollar, also little changed from Wednesday

– Gold was down on Thursday morning in Asia against a firmer dollar, as investors await U.S. data to get further signals on the inflation level and economic recovery from the COVID-19 pandemic.

Chart Focus AUD/USD
Key Points
1. Buy AUD/USD recommendation.
2. Buy AUD/USD at 0.7735. Stop at 0.7695 and target at 0.7795.
3. A decline in Treasury yields and expectation that the Federal Reserve will keep interest rate low are both likely to weigh on the US dollar.
4. Price is supported by the 20EMA line and Fibonacci point with both momentum indicators hinting of a bullish price trend.

Fundamental Comments
1. U.S. 10-year Treasury yields fell below 1.50%, its lowest level since 12 March 2021, weighing on the US dollar.
2. Expectation that the Federal Reserve will keep interest rate low is likely to weigh on the US dollar

Technical Comments
1. Price is supported by 20EMA line and a Fibonacci 38% correction support point.
2. Both Stochastic and MACD are hinting of a bullish price trend ahead.

Key Levels

Support0.77200.76900.7645
Resistance0.77600.77950.7840

Technical Overview
USD/JPY – We had a sell order yesterday which was filled at 109.55 when price rallied to a high of 109.67. Our view remains unchanged and we would also recommend keeping stop at 109.95 and profit target at 108.75. MACD remains bearish. Stochastic is close to its overbought extreme and could be turning down. However, 20EMA remains bullish at the moment.

Support109.30108.95108.55
Resistance109.65109.95110.35

EUR/USD – Our short position from Monday was taken out last night when price advanced to a high of 1.2217. We lost 40 pips on this trade. However, price has declined after reaching a high of 1.2217 to 1.2160 at the point of this writing. Stochastic and MACD both continue to hint of a bearish price trend ahead. 20EMA is also bearish and hinting of a bearish price trend. We believe price is consolidating ahead of US data for direction.

Support1.21451.20901.2050
Resistance1.21851.22151.2250

GBP/USD – Price has fallen below yesterday’s low but is still above last Friday’s low of 1.4082. We think the consolidation could continue until US data later tonight. Stochastic is close to the oversold extreme and MACD remains bearish and is hinting of a bearish price trend. 20EMA is also hinting of a bearish price trend ahead. Wait for better direction.

Support1.41001.40701.4030
Resistance1.41501.42051.4250

XAU/USD – Price dropped to a low of $1882.35 last night. While it was below Wednesday’s low, it was above the gap support at $1875, keeping the consolidation view intact for the moment. Stochastic is likely to rise after a bullish crossover in the oversold extreme but both MACD and 20EMA are hinting of a bearish price trend ahead. We would prefer to wait for clear direction.

Support1882.051874.951866.25
Resistance1891.451903.501916.45

NZD/USD – We had a buy call from Tuesday at 0.7210 and yesterday we had placed stop at 0.7170 and profit target at 0.7300. However, our stop was triggered when price declined to a low of 0.7164. We lost 40 pips on this trade. Stochastic is turning up after a bullish crossover in the oversold zone but MACD remains bearish. 20EMA is also hinting of a bearish price trend.

Support0.71650.71250.7070
Resistance0.71950.72400.7275

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