Market Talk
– The US dollar paused for breath on Tuesday morning in Asia as traders ponder the possibility that policy tightening could be more gradual than expected which allayed fears over the U.S. Federal Reserve’s latest hawkish tilt.
– Although inflation had increased, it will move back toward Fed’s 2% target once supply imbalances resolve, said Powell in written remarks prepared ahead of his Tuesday’s testimony before Congress in contrast to the previous week’s Fed decision, which hinted that interest rate hikes and asset tapering could come sooner than expected.
– Against the euro, the dollar nursed an overnight loss of about 0.4% to steady around 1.1909. It held at 110.31 yen. Sterling steadied at 1.3917, holding on to its overnight bounce as investors look forward to the British economy reopening further on July 19.
– The Australian and New Zealand dollars eased after snapping losing streaks on Monday. The Aussie trades at 0.7515 up from last Friday’s low of 0.7472, while the kiwi was at 0.6970 against Friday’s low at 0.6921.
– Gold edged up on Tuesday, as investors bet that tightening will be more gradual after the biggest weekly fall in 15 months last week after the Fed handed down its latest policy decision.
Chart Focus GBP/USD
Key Points
1. Sell GBP/USD recommendation.
2. Sell GBP/USD at 1.3920. Stop at 1.3960 and target at 1.3810.
3. A rise in Treasury yield and a resumption of US dollar strength are both likely to aid the US dollar.
4. Price is likely to be capped by 20EMA and Fibonacci 50% correction point while momentum indicators are hinting of a bearish price trend.
Fundamental Comments
1. A recovery in the benchmark 10-year Treasury yield is likely to aid US dollar strength.
2. Yesterday’s dollar weakness may be a correction after a strong bullish movement in the previous few days and US dollar strength could be about to resume
Technical Comments
1. Price recovery has been halted by the 20EMA and the Fibonacci 50% correction which are signs of a correction.
2. Stochastic has reached the overbought zone and could be about to turn down while MACD is hinting of a bearish price trend.
Key Levels
| Support | 1.3895 | 1.3840 | 1.3795 |
| Resistance | 1.3935 | 1.3975 | 1.4010 |
Technical Overview
USD/JPY – Price had dipped below the previous low at 109.80 to a low of 109.70. A recovery has seen price moved up to 110.53 at the point of writing. Stochastic is rising and hinting of a rising price trend. MACD is bullish and 20EMA is also bullish and rising. Both are hinting of a bullish price trend ahead. We think price is likely to move higher towards the previous high of 110.85.
| Support | 110.25 | 109.90 | 109.60 |
| Resistance | 110.55 | 110.95 | 111.40 |
EUR/USD – Price has recovered from the low of 1.1847 to a high of 1.1920 at the point of writing. However, we think price is likely to be capped around 1.1925 and from this resistance; price is likely to move lower to 1.1847 again over the next few days. 20EMA is bearish and providing resistance at 1.1925. MACD remains bearish and is hinting of a bearish price trend ahead. Stochastic is rising and hinting of a bullish price trend.
| Support | 1.1885 | 1.1845 | 1.1810 |
| Resistance | 1.1925 | 1.1955 | 1.2005 |
USD/CAD – Price has pulled back to the 20EMA support at 1.2360 overnight from a high of 1.2486. Stochastic is still declining but MACD remains bullish. 20EMA is also bullish and hinting of a bullish price trend ahead. We think price is likely to be supported by the 20EMA and a rally back to 1.2486 is likely. A move below 1.2300 would negate our bullish view for the next few days.
| Support | 1.2355 | 1.2295 | 1.2260 |
| Resistance | 1.2385 | 1.2435 | 1.2485 |
XAU/USD – From a low of $1760.70 last Friday, price has recovered and has reached a high of $1790.05 this morning. However, we think the upside is limited and a decline back to $1760 is likely over the next couple of days ahead. Stochastic may be rising but MACD remains bearish and is hinting of a bearish price trend ahead. Similar 20EMA is bearish and is capping price at $1790.
| Support | 1775.70 | 1760.70 | 1749.20 |
| Resistance | 1787.95 | 1797.05 | 1806.30 |
AUD/USD – We had a buy call yesterday at 0.7480 which was filled when price declined to a low of 0.7476. Price had recovered overnight to 0.7546 but was capped by the 20EMA. Stochastic may be rising but MACD remains bearish. We fear price may have reached a high at 0.7546. We would recommend bringing stop to cost at 0.7480 while keeping profit target at 0.7580.
| Support | 0.7505 | 0.7470 | 0.7435 |
| Resistance | 0.7545 | 0.7590 | 0.7640 |