FX Commentary – Gold Slipped Despite Powell’s Dovish Comments

Market Talk
– The dollar was headed on Friday for its best weekly gain in about a month, supported by worries about quicker U.S. interest rate increases despite Fed Chair Powell’s dovish comments and by rising COVID-19 infections in various parts of Asia.

– Powell’s comments were given during his second day of testimony before the House of Representatives Financial Services Committee on Thursday, where he repeated his pledge of “powerful support” for the U.S. economic recovery from COVID-19 and his view that inflation will be temporary.

– Investors widely expect the Fed will begin asset tapering by the end of 2022. Some even predicted an interest rate hike as early as 2022 but acknowledged that recent COVID-19 outbreaks involving the Delta variant remain the biggest economic risk.

– The NZ dollar was the biggest mover amongst majors in morning trade, after consumer prices rose far faster than expected at a decade-high pace of 1.3% for the June quarter and 3.3% for the year. The reading has brought forward rate hike expectations to next month after the RBNZ became the first developed-market central bank to exit from emergency policy settings.

– Gold was down on Friday morning in Asia despite Federal Reserve Chair Jerome Powell’s dovish comments that any inflation will be transitory and that the central bank would continue to support the economy.

– There will be no Daily FX Commentary reports on Monday and Tuesday. Commentary will resume on Wednesday.

Chart Focus XAU/USD- Gold
Key Points
1. Sell Gold recommendation.
2. Sell Gold at $1826.00. Stop at $1835.00 and target at $1805.00.
3. Investors’ expectations of earlier tapering and recent outbreaks of COVID-19 are likely to support the US dollar.
4. Fibonacci and MACD are both hinting that price may have hit a high and a reversal is likely.

Fundamental Comments
1. Investors’ expectation of an earlier tapering is likely to weigh on Gold.
2. Recent COVID-19 outbreaks are likely to support the US dollar.

Technical Comments
1. Price was capped by the Fibonacci 50% correction point of the decline from $1916.45 to the low of $1750.65.
2. MACD has given a divergence warning of a potential price high.

Key Levels


Technical Overview

USD/JPY – Price moved to a high of 110.69 on Wednesday and in the process created an Evening Star candlestick price pattern on the 4-hourly chart. This is a hint of a price high and a likely reversal in trend to follow. Price has declined to a low of 109.71 overnight but we are expecting the decline to continue lower to 109.30 as MACD remains bearish. Stochastic is also weak while 20EMA is hinting of a bearish price trend ahead.


EUR/USD – Price was capped at 1.1850 and we saw a decline to 1.1795. Stochastic is moving lower but MACD had a bullish crossover. Both indicators are in conflict at the moment. 20EMA is also flat and not informative at the moment. We are likely to see price move within a range of 1.1850 to 1.1770 today. Wait on the side-line today for clearer direction.


GBP/USD – Price rose to a high of 1.3895 overnight but declined within the day to a low of 1.3804. Stochastic continues to move lower, hinting of a bearish price trend. MACD is flat along the zero line. 20EMA is above price but the bearish trend is likely to be weak. We are likely to see a range with the top end at 1.3910 and the lower band at 1.3795. Wait for clearer direction.


NZD/USD – We had a buy call yesterday at 0.7010 with a stop at 0.6980. Price declined to a low of 0.6955 before bouncing up. We are out with a loss of 30 pips. Our view remains bullish and we are still looking for a price move to 0.7100. MACD remains bullish while Stochastic just had a bullish crossover. 20EMA is also bullish. All three indicators are hinting of a price rally ahead.


AUD/USD – We had a sell recommendation for this pair on Monday at 0.7480, and yesterday, we had recommended keeping stop at 0.7505 and profit target at 0.7395. Price declined to a low of 0.7410 and had bounced back to 0.7440. Stochastic continues to rise but MACD remains bearish. 20EMA is flat. We recommend bringing stop lower to 0.7450 and profit target to 0.7410 for today.


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