FX Commentary – US Dollar Stronger After FOMC Minutes

Market Talk
– The dollar traded near its highest in three months versus major peers on Thursday after minutes of the Federal Reserve’s June policy meeting confirmed the world’s biggest central bank is moving toward tapering its asset purchases as soon as this year.

– Fed officials felt substantial further progress on the U.S. economic recovery “was generally seen as not having yet been met,” but agreed they should be poised to act if inflation or other risks materialized, according to the minutes of the central bank’s June policy meeting.

– The dollar traded slightly lower at 110.58 against yen, as the pair continued to be weighed down by a slide in U.S. Treasury yields. The benchmark 10-year Treasury note yielded 1.3196% on Thursday in Asia after dipping to 1.2960% overnight for the first time since mid-February.

– The dollar was flat at $1.1791 per euro, just off a three-month peak of $1.1781 touched overnight, when investor sentiment in Germany, the euro zone’s biggest economy, fell sharply in July, though it remained at a very high level, the ZEW economic research institute reported.

– Gold slipped on Thursday, weighed down by a stronger dollar after minutes from the U.S. Federal Reserve’s last meeting highlighted inflationary pressure and confirmed that asset purchases tapering are on the cards this year.


Chart Focus XAU/USD Gold
Key Points
1. Sell Gold recommendation.
2.  Sell Gold at $1798. Stop at $1807 and target at $1783.
3. Expectation of tapering and a stronger US dollar are both likely to weigh on Gold.
4. A failed Double Tops test and a declining Stochastic are both hints of a bearish price trend ahead.

Fundamental Comments
1. Expectation of tapering by the end of the year is likely to weigh on Gold.
2. A stronger US dollar is likely to weigh on Gold

Technical Comments
1. Price is likely to decline after a failed test of the previous high.
2. Stochastic is moving lower and is hinting of a bearish price trend.

Key Levels

Support1790.451782.651771.90
Resistance1803.251818.201825.10

Technical Overview

USD/JPY – We had a buy call yesterday at 110.40 which was not filled as price only reached a low of 110.41. We changed our bullish view on USD/JPY as it is likely to dragged lower by a declining Treasury yield. MACD is hinting of a possible rally. Stochastic has a bullish crossover near to the oversold zone. Stochastic is also hinting of a possible price rally. If support at 110.40 holds, we are likely to see a price movement to 110.85.

Support110.35109.90109.65
Resistance110.65110.95111.25

EUR/USD – Price fell below the previous low of 1.1806 and declined to a low of 1.1781 overnight. We are expecting this decline to continue over the next few days to a low of 1.1705. However, Stochastic has a bullish crossover in the oversold zone and is rising. MACD also has a bullish crossover and is rising. Both indicators are hinting of a likely price rally ahead. We view this rally as corrective. We think it is likely to be capped at 1.1840 and from there a decline to 1.1705

Support1.17801.17401.1705
Resistance1.18101.18451.1885

GBP/USD – Price breached 1.3830 to reach a high of 1.3840 but our view remains unchanged and we are likely to see a price move to 1.3730 over the next few days. Stochastic continues to move lower but has not yet reached the oversold zone. MACD is close to zero line and there could a possible divergence forming as well. 20EMA is flat and neutral at the moment.

Support1.37601.37351.3690
Resistance1.37951.38301.3865

AUD/USD – Price is approaching last week’s low 0.7444 but Stochastic is already deep in the oversold zone. MACD and 20EMA are both bearish and hinting of a strong bearish price trend ahead. If price were to break below 0.7444, it could be heading lower to 0.7285. There is also a possibility of price holding above this support for a test of 0.7500 before a decline to 0.7285.

Support0.74400.73900.7340
Resistance0.74700.75050.7535

EUR/JPY – Price has broken below a strong support at 130.03 but Stochastic is deep into the oversold zone. MACD remains bearish but there is a possible divergence forming with price. Both indicators are warning that price could be approaching a low and a possible reversal is around the corner. However, 20EMA is pointing lower with a steep slope and hinting of a strong bearish price trend ahead.

Support130.00129.60129.15
Resistance130.40130.80131.05

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