FX Commentary – US Dollar Is Likely To Consolidate Before FOMC’s Meeting

Market Talk
– The U.S. dollar and other majors were mostly flat with U.S. markets closed on Monday as investors wait for the minutes from the FOMC meeting in June for further clues on the central bank’s stance which will be due on Wednesday after it had surprised markets with a hawkish shift in its June meeting.

– The Reserve Bank of Australia kept interest rate unchanged at 0.1% and retains April 2024 bonds as bond yield target. The RBA extended QE with some added flexibility – by reducing the rate of purchases to A$4 billion per week until 11 November 2021.

– In Europe, Markit composite purchasing managers PMI index and services PMI index were both higher than expectation with businesses in the area expanding at the fastest pace in 15 years, helping the Euro to maintain its gains from Friday’s rally.

– The New Zealand dollar rose on Tuesday after a strong business survey showed sharp improvement in business confidence, pushed forward rate hike expectations to as soon November, pushing the Kiwi to almost 72 cents against the US dollar.

– Gold prices on Tuesday hit their highest in nearly three weeks, as a pullback in the dollar made bullion less expensive while investors wait for minutes from the U.S. Federal Reserve for clarity on monetary policy.

Chart Focus GBP/USD
Key Points
1. Buy GBP/USD recommendation.
2. Buy GBP/USD at 1.3860. Stop at 1.3830 and profit target at 1.3950.
3. Lifting of lockdown in UK and US data which showed the Fed can refrain from tapering are both likely to weigh on the US dollar.
4. Price is reversing from a possible Double Bottoms with MACD hinging of a bullish price trend ahead.

Fundamental Comments
1. Labour data which showed the Fed can refrain from tapering earlier is weighing on the US dollar.
2. Confirmed July 19 lifting of lockdown in UK is likely to aid Sterling

Technical Comments
1. Price is recovering from a possible Double Bottoms formation and is likely to move towards the Fibonacci 50% correction point.
2. Stochastic is strong and rising while MACD is turning bullish and hinting of a bullish price trend.

Key Levels


Technical Overview

USD/CNH – We had a buy recommendation on this pair last Friday at 6.4710, which was filled when price dropped to a low of 6.4632. We would recommend keeping stop at 6.4515 and profit target at 6.5010. Stochastic is starting to turn up after reaching the oversold zone after price reached a low of 6.4590. MACD and 20EMA are both bearish at the moment.


EUR/USD – Price had reached a low of 1.1806 last Friday before the rally higher to 1.1873. MACD has given a divergence warning when price hit the low, which is a warning of a possible end of the downtrend. Stochastic has been rising from the oversold zone, hinting of more price upsides ahead. A move above 1.1885 would confirm 1.1806 as the low and a possible rally to 1.1950.


USD/JPY – We had a buy call on this pair yesterday at 111.05 but our stop was triggered yesterday when price dropped below 110.80. We are out of this position with a low of 25 pips. Stochastic continues to decline but is in the oversold zone at the moment. MACD and 20EMA both remain bearish and are hinting of a bearish price trend ahead. Price has also moved beyond the Fibonacci 62% correction which is a hint that the decline might not be a correction but a bearish trend instead.


XAU/USD – Price has broken above a down trending line last Thursday and has moved higher to $1794.90 on Friday. Price is likely to be supported at $1780 and we are expecting the rally to continue higher to either $1806 or $1825 in the few days ahead. Stochastic is near to the overbought zone but MACD and 20EMA have both turned bullish and hinting of a bullish price trend ahead.


XAG/USD – We had a buy call on this pair last Thursday at $26.10 which was filled when price declined to a low of $25.93. Yesterday, we had recommended bringing stop higher to $26.20 while keeping profit at $26.75 as price has moved higher. Stochastic is rising and MACD remains bullish. Both are hinting the uptrend could continue. We are expecting price to reach our profit target and higher by end of New York trading tonight.


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