FX Commentary – Decline In Treasury Yields Dragged US Dollar Lower

Market Talk
– The US dollar was down on Friday morning in Asia after alternating between losses and gains overnight as investors digested elevated U.S. inflation and European Central Bank commentary while eyeing the U.S. Federal Reserve’s next meeting.

– Data overnight showed U.S. consumer prices up 5% year-on-year, the sharpest rise in more than a dozen years and core inflation surging 0.7% in a month. However, investors bet that price pressures are not going to force the U.S. Fed to hike interest rates sooner than expected due to hefty contributions from short-term rises.

– Benchmark 10-year U.S. Treasuries actually rallied to a three-month high in the wake of CPI but the 10-year U.S. Treasury note’s yield dipped to a three-month low of 1.434%, as the market bet the Federal Reserve will keep its current dovish monetary policy unchanged for a while.

– A dovish commitment from the European Central Bank to stick with its elevated tempo of bond buying held the euro in check at $1.2175, even as officials admitted for the first time since 2018 that the euro-zone economy was no longer overshadowed by risks to its growth outlook.

– Gold hovered around the $1,900 mark as investors reacted to the latest CPI figures, indicating that they are buying into the Fed’s insistent view that inflation is temporary and that there will be no big changes in monetary policy in the short term.

Chart Focus XAU/USD Gold
Key Points
1. Buy Gold recommendation.
2. Buy Gold at $1895. Stop at $1887 and profit target at $1916
3. A decline in US 10-year 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 and momentum indicators are hinting of a bullish price trend.

Fundamental Comments
1. 10-year U.S. Treasury note’s yield dipped to a three-month low of 1.434% is 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. 20EMA is supporting price and hinting of a bullish price trend.
2. MACD remains bullish and Stochastic is rising. Both are hinting of a bullish price trend.

Key Levels


Technical Overview
USD/JPY – We had a sell order on Wednesday which was filled at 109.55 when price rallied to a high of 109.67. Our view remained unchanged and we had recommended keeping stop at 109.95 and profit target at 108.75. MACD remains bearish. Stochastic is moving lower towards the oversold zone. 20EMA has turned bearish. These indicators are hinting of a bearish price trend ahead.


EUR/USD – Price tested the low of 1.2142 but has managed to bounce up higher again, moving into a familiar range of the past 3 days. We think price is likely to move within a range low of 1.2140 to the range high of 1.2215 over the next couple of days until we can see a break of these boundaries. Both MACD and 20EMA are also hinting of a sideways movement. Stochastic is rising.


GBP/USD – Price has fallen below consolidation’s low of 1.4082 to a low of 1.4073 but price has bounced back strongly to a high of 1.4185 this morning. Price will need to move above 1.4205 in order to move higher. Inability to move above 1.4205 is likely to result in a decline back to 1.4073 over the next few days. Stochastic is moving towards the overbought zone but MACD remains bearish. 20EMA is bullish.


XAG/USD – Price has managed to hold above the support at $27.40 and has moved higher to $28.20 on Friday morning. We think this rally is likely to continue towards the previous high at $28.55. Stochastic is still rising despite in the overbought zone. MACD and 20EMA are both hinting of a bullish price trend. A move below $27.40 would negate our bullish view.


AUD/USD – We had a buy call on this pair at 0.7735 and yesterday, price fell to a low of 0.7714. Our view remains unchanged. However, we would recommend moving stop to 0.7710 while keeping profit order unchanged at 0.7795. 20EMA and MACD are both hinting of a bullish price trend. Stochastic is moving higher towards the overbought extreme.


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