FX Commentary – US Dollar Awaits Inflation Data For Clearer Direction

Market Talk
– The U.S. dollar held near multi-month highs on Friday as investors warily awaited U.S. inflation data later in the day to close the week after last week hawkish tilt was countered by comments from Fed Chairman and other officials throughout the past week to calm market nerves about an imminent interest rate hike.

– Massive fiscal stimulus helped the U.S. economy grow at a 6.4% annualized rate in the first quarter with investors banking on an infrastructure agreement that could steer the next leg of the recovery for the world’s largest economy and fuel more stock gains.

– Initial claims for state unemployment benefits fell 7,000 to 411,000 for the week ended June 19, the Labour Department said on Thursday, but were still higher than the 380,000 that economists had forecast.

– The British pound nursed a modest loss after the BOE hinted that it was in no hurry to hike interest rates, with officials warning against “premature tightening”.  The central bank said inflation would exceed 3% in the coming months, but expected that the surge will be transitory and would not impact the current stimulus policy.

– Gold was up on Friday morning in Asia as investors digested mixed signals from U.S. Federal Reserve officials on interest rate hikes earlier this week, while awaiting U.S. inflation data due later in the day.

Chart Focus USD/CHF
Key Points
1. Sell USD/CHF recommendation.
2. Sell USD/CHF at 0.9180. Stop at 0.9220 and target at 0.9110.
3. Higher jobless claims and Fed’s officials hinting that rate hike is some time away are both is likely to weigh on the US dollar.
4. Both 20EMA and Stochastic are hinting of a declining price trend ahead.

Fundamental Comments
1. Higher than expected jobless claims is hinting rate hike is not around the corner.
2. Fed’s officials are also hinting that rate hike is some time away, which is likely to weigh on the US dollar

Technical Comments
1. Price has declined below the 20EMA which is a hint of a deeper price correction ahead.
2. Stochastic has turned down, hinting of a declining price trend ahead.

Key Levels


Technical Overview

USD/JPY – Price has broken above the previous high of 110.82 on Tuesday and reached a high of 111.12 on Wednesday. MACD is warning that 111.12 could be a potential price high with divergence warning. Stochastic is moving lower after a bearish crossover in the overbought zone. Both momentum indicators are hinting of a price decline ahead. We see price going lower to 110.45 in the next couple of days.


EUR/USD – After reaching a high of 1.1969 on Wednesday, price has been moving in a sideways range. Stochastic is turning down after reaching the overbought zone. MACD and 20EMA are both flat and neutral at the moment. Price will need to move above 1.1969 to turn the trend bullish for 1.2040. A move below 1.1910 could be a hint for 1.1850. We prefer to wait for clearer hint.


GBP/USD – Price reached a high of 1.4001 on Wednesday which was the Fibonacci 61.8% correction point of the decline from 1.4132 to the low of 1.3786. If price is unable to move above 1.4000, it is likely to head lower to 1.3800 again. Stochastic continues to move lower but MACD remains bullish. However, 20EMA has turned bearish and is hinting of a bearish price trend ahead.


XAU/USD – We had a sell recommendation yesterday at $1782.80, which was filled when price rallied to a high of $1787.85. Our view remains unchanged and we would recommend bringing stop lower to $1788 while keeping profit target at $1760.50. Stochastic is close to the oversold zone and MACD is flat along the zero line, hinting of a sideways movement. 20EMA is also neutral.


USD/CNH – Price had reached a high of 6.4947 on Wednesday. The high was in the form of a Spinning Top candlestick price pattern, which is usually a sign of a possible reversal. Price has since declined lower to 6.4565. We are expecting this decline to continue lower to 6.4225. Stochastic continues to decline while MACD is about to turn bearish. 20EMA is also bearish.


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