FX Commentary – US Dollar Holds Steady Despite Tame Inflation Data

Market Talk
– The US dollar was up on Monday morning in Asia although US inflation data released last Friday was softer than expectation. Investors remained concerned about a tightening monetary policy if the consumer price pressures continue to intensify.

– US core personal consumption expenditure price index grew 0.5% month-on-month in May, although the core PEC price index surged 3.4% in the 12 months through May, the largest gain since April 1992.

– Investors remained optimistic about the ongoing economic recovery from COVID-19 after U.S. President Joe Biden said he didn’t plan to veto a $1.2 trillion bipartisan infrastructure bill if a separate Democratic spending plan doesn’t pass Congress.

– The euro was little changed at 1.1938, struggling to recover the $1.20 level while the dollar consolidated at 110.80 yen, not far from Wednesday’s 15-month high of 110.10. The British pound stood at 1.3889.

– Gold was up on Monday morning in Asia as investors digested the U.S. Federal Reserve’s mixed signals on monetary policy tightening after the release of tame inflation data

Chart Focus AUD/USD
Key Points
1. Sell AUD/USD recommendation.
2. Sell AUD/USD at 0.7595. Stop at 0.7625 and profit target at 0.7500.
3. An increase in US Treasury yield and lockdown in Sydney are both likely to aid the US dollar against the Aussie dollar.
4. A rally capped by the Fibonacci 50% correction point and bearish momentum indicators are both hinting of a bearish price trend ahead.

Fundamental Comments
1. A rise in Treasury yield above 1.500% is likely to keep the US dollar strong.
2. Lockdown of Sydney as coronavirus cases increased is likely to weigh on the Aussie dollar

Technical Comments
1. A rally was capped by the Fibonacci 50% correction point, which is a hint of a bearish price trend ahead.
2. Divergences in Stochastic and MACD are both hinting of a price high and a bearish price trend.

Key Levels


Technical Overview
USD/JPY – Price reached a low of 110.47 last Friday, just ahead of our target at 110.45. Stochastic has a bullish crossover and is rising again, hinting of a bullish price trend. MACD remains bullish but 20EMA is bearish at the moment. We are inclined to believe 110.47 as the low and a price rally to test the previous high of 111.12 again over the next few days ahead.


EUR/USD – Price broke above the previous high of 1.1969 on Friday but only reached a high of 1.1975. It was also unable to sustain above this high and we saw a decline back into the range. Our view remains the same as last Friday. We are expecting a break below 1.1910 to lead price lower to 1.1850. Stochastic continues to decline but MACD is flat and neutral at the moment.


GBP/USD – Price reached a low of 1.3859 last Friday and this could be a possible low. Stochastic has a bullish crossover in the oversold zone and is moving higher. MACD remains bearish but could have a bullish crossover soon near to the zero line which is a hint of a possible bullish price trend. If price stays above 1.3859, it is likely to move back to test 1.4000 again over the next couple of days.


XAU/USD – We had a sell recommendation last Thursday at $1782.80, which was filled when price rallied to a high of $1787.85. We had recommended bringing stop lower to $1788 while keeping profit target at $1760.50. Unfortunately, price reached a high of $1790.22 and triggered our stop. We are out with a $7.20 loss. Going forward, we see price staying within a range of $1796.70 to $1760.60. MACD and 20EMA are both flat and neutral, hinting of a sideways movement.


USD/CHF – We had a sell call last Friday at 0.9180, which was filled when price rallied to 0.9188 this morning. Our view remains unchanged and we would recommend keeping stop at 0.9220 and profit at 0.9110. Stochastic continues to trend higher from the middle of its range. MACD remains bearish but is flat and near to the zero line. Both momentum indicators are hinting of a sideways movement in the near future.


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