FX Commentary – Euro Dollar Declined On A Weak German ZEW Sentiment Index

Market Talk
– The US dollar was down on Wednesday morning in Asia ahead of the U.S. Federal Reserve’s release of the minutes from its latest meeting and weigh down by data showing U.S. services industry activity grew at a moderate pace in June, likely restrained by labour and raw material shortages.

– The Euro fell to an almost three-month low of $1.1806 as German ZEW sentiment index disappointed and raised concerns about the country’s economic recovery from COVID-19. It also fell against the yen to 130.81 yen, close to a two-month low of 130.05 hit on Jun. 21.

– Benchmark 10-year U.S. Treasury yields hit February lows after data released on Tuesday showed U.S. Institute of Supply Management (ISM) non-manufacturing purchasing managers index (PMI) in June was 60.1, below the 63.5 figure in forecasts.

– In its first step towards asset tapering, the RBA announced a smaller, third round of its quantitative easing program and retained the April 2024 bond for its three-year yield target of 0.1%. Its interest rate remained unchanged at 0.1% and is likely to stay unchanged before 2024.

– Gold was up on Wednesday morning in Asia after hitting a three-week high during the previous session as benchmark 10-year U.S. Treasury yields fell to their lowest level in more than four months sending the yellow metal higher.


Chart Focus USD/JPY
Key Points
1. Buy USD/JPY recommendation.
2. Buy USD/JPY at 110.40. Stop at 110.15 and target at 111.00.
3. Spread of COVID-19 infections in Tokyo and several countries is likely to increase demand for the safe haven US dollar.
4. Ability to hold a support area and with momentum indicators hinting of a price upside, is likely to result in a rally.

Fundamental Comments
1. A surge in COVID-19 infections in Tokyo, just weeks before the city hosts the Olympics is likely to weigh on the yen.
2. The spread of the virulent Delta strain of the COVID-19 virus in several countries is likely to increase demand for the safe haven US dollar

Technical Comments
1. Price was able to hold above the previous support level and could be heading higher to the Fibonacci 50% correction point of the decline.
2. Stochastic is in the oversold zone with MACD likely to turn up as well. Both are hinting of a price rally ahead.

Key Levels

Support110.35109.90109.65
Resistance110.65111.00111.25

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. Yesterday, we had recommended keeping stop at 6.4515 and profit target at 6.5010. Price had reached a high of 6.4856 and has declined to 6.4690 this morning. We would recommend closing the position at current level for a small profit.

Support6.45106.44006.4215
Resistance6.47006.48606.4945

EUR/USD – Price fell to a low of 1.1806 which was also the previous low. Ability to hold above this support and with divergence from MACD indicator, it looks like the next movement for price is likely to be higher to 1.1910. MACD remains bearish but is close to the zero line. Stochastic is close to the oversold zone and is hinting of a price rally. 20EMA remains bearish. A break below 1.1800 would negate our bullish view.

Support1.18051.17651.1705
Resistance1.18451.18851.1915

GBP/USD – Yesterday, we had a buy call on this pair at 1.3860 but our stop was triggered when price declined below 1.3830. We lost 30 pips on this trade. Stochastic is close to the oversold zone and MACD remains bullish. However, 20EMA is now bearish. If price stays below 1.3830, we are likely to see a price move to 1.3730. Above 1.3830, we are likely to see a price move to 1.3920.

Support1.37701.37301.3690
Resistance1.38201.38651.3920

XAU/USD – Price reached a high of $1814.90 overnight before declining back to $1790.90, which is also the 20EMA support line. As long as price holds above this support line, we are likely to see another rally to $1825 in the next couple of days ahead. MACD remains bullish but Stochastic is currently declining after reaching the overbought zone. 20EMA remains bullish.

Support1793.751782.651771.90
Resistance1806.301818.201825.10

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. Last night our profit target was met when price reached a high of $26.76. We are out with a 65 cents profit. Price was supported at $26.00 overnight and if this level holds, we are likely to see another rally to $26.76. Stochastic and MACD are both bullish at the moment.

Support26.2025.9025.50
Resistance26.5026.8027.25

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