FX Commentary – US Dollar Extended Its Gain Following Last Thursday Fed’s Remarks.

Market Talk
– The dollar extended its advance against a basket of currencies, building on the gains logged after the U.S. Federal Reserve surprised markets last week by signalling it would raise interest rates and end emergency bond-buying sooner than expected.

– Investors’ risk appetite took another hit after St. Louis Federal Reserve President James Bullard said on Friday that the U.S. central bank’s shift toward a faster tightening of monetary policy was a “natural” response to economic growth and particularly inflation moving quicker than expected as the country reopens from the coronavirus pandemic.

– The euro traded at 1.1872 on Monday, having hit a 2 1/2-month low of 1.1847 on Friday. The British pound fetched 1.3809, standing near Friday’s two-month low of $1.3791. The Australian dollar wobbled at 0.7503, having dropped to as low as 0.7478, a low last seen in December.

– The safe-haven yen held firmer as the Fed’s tilt hit risk asset prices. The greenback had slipped down to 109.95 yen pulling away from last Thursday’s 2 1/2-month high of 110.82. A decline in US benchmark 10-year yield has contributed to the greenback’s weakness.

– Gold struggled for traction in choppy trading on Monday after posting its biggest weekly loss in 15 months as the dollar extended its rally on the back of the U.S. Federal Reserve’s hawkish outlook.

Chart Focus AUD/USD
Key Points
1. Trading Buy AUD/USD recommendation.
2. Buy AUD/USD at 0.7480. Stop at 0.7445 and target at 0.7580.
3. A decline in benchmark 10-year Treasury yield and strong Aussie data are both likely to weigh on the US dollar.
4. Momentum indicators are hinting of a price correction before the decline resume again.

Fundamental Comments
1. US benchmark 10-year Treasury yield has declined and is likely to weigh on the US dollar.
2. Strong Aussie data last Friday is likely to halt the decline in the Aussie against the US dollar.

Technical Comments
1. Price is consolidating around the previous low which has managed to halt the decline.
2. Stochastic is oversold and MACD has a bullish crossover. Both momentum indicators are hinting of a price correction.

Key Levels


Technical Overview
USD/JPY – After reaching a high of 110.82 on Thursday, the decline which started on Friday has continued on Monday, breaking the 20EMA support as well as the previous support at 109.90. Price has reached a low of 109.70 on Monday morning but the decline looks like continuing lower to 109.20. Stochastic continues to decline and MACD is also declining and hinting of a bearish price trend ahead. Price has also moved below the 20EMA, changing the trend to a bearish trend.


EUR/USD – The decline continues and price reached a low of 1.1846 on Friday night. The decline might slow down but looks likely to continue lower. Stochastic is deep into the oversold extreme and could limit the downside to 1.1815.  MACD remains strong bearish. 20EMA is also pointing lower with a steep slope, hinting of a strongly bearish price trend ahead.


GBP/USD – Price continues its decline following the FOMC announcement, to reach a low of 1.3786 on Friday night. Price continues to be near the low at 1.3786 but the downside could be limited to 1.3750. Stochastic is deep in the oversold zone and is turning up. MACD remains bearish but could be turning up as well. 20EMA continues to show a strong bearish price trend ahead.


XAU/USD – Price reached a low of $1760 on Friday and if price can move above $1775, it could confirm a temporary low at $1760 and a price retracement to the 20EMA resistance at $1800. Stochastic is in the oversold extreme. MACD remains in the bearish zone but had a bullish crossover and is likely to pull price higher in a corrective move. 20EMA remains strongly bearish.


USD/SGD – Last Friday, we had a buy call at 1.3380 but price only reached a low of 1.3389 before a rally brought price higher to 1.3463. MACD remains bullish and rising, hinting of a bullish price trend. 20EMA is also rising with a steep trend, hinting of a strong bullish price trend. Stochastic is into the overbought zone. The strong trend is likely to bring price above the Fibonacci 127% price target at 1.3486 to the Fibonacci 161.8% price target at 1.3550.


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