Market Talk
– The dollar found support just below last week’s peaks on Monday morning as renewed concerns about China’s property sector and looming U.S. labour data put investors in a cautious mood. Data released on Friday showed increased consumer spending, accelerated factory activity and elevated inflation growth, which could help nudge the U.S. Federal Reserve tapering earlier.
– Shares in embattled developer China Evergrande Group were halted in Hong Kong without any immediate reason, with investors concerned that a collapse at Evergrande could hurt an already fragile Chinese economy and drag on global growth.
– The euro dipped back below 1.16 after recovering from last Friday’s 14-month low at 1.1563. The yen edged higher from a 19-month low last week to 110.99 per dollar as markets reckoned U.S. interest rates could rise ahead of global peers.
– Sterling, despite last Friday’s gains, is still nursing losses from a sharp draw down last week when traders shrugged off hawkish central bank rhetoric to focus on a sour outlook and the risk of both higher rates and inflation.
– Gold was up on Monday morning in Asia, hitting a near two-week peak as the dollar weakened and offset bets that the U.S. Federal Reserve could begin asset tapering soon. Demand for physical gold also rose in top consumer China last week aiding the yellow metal.
Chart Focus GBP/USD
Key Points
1. Sell GBP/USD recommendation.
2. Sell GBP/USD at 1.3555. Stop at 1.3590 and profit target at 1.3420
3. US economic data and renewed concerns about Evergrande are both likely to lead to demand for the US dollar.
4. Price is capped by the Fibonacci 50% correction point with MACD and Stochastic both hinting of a bearish price trend ahead.
Fundamental Comments
1. US data showed increased consumer spending, accelerated factory activity and elevated inflation growth, which is likely to an earlier than anticipated rate hike.
2. Renewed concerns about Evergrande’s economic impact is likely to lead to demand for the safe haven US dollar.
Technical Comments
1. Price is capped by the Fibonacci 50% correction point which is a hint of a bearish price trend ahead.
2. Stochastic and MACD are both hinting of a bearish price trend ahead.
Key Levels
| Support | 1.3530 | 1.3485 | 1.3440 |
| Resistance | 1.3575 | 1.3610 | 1.3655 |
Technical Overview
USD/JPY – We had a buy call last Friday at 110.75 but price only reached a low of 110.87 and our entry order was not filled. Our view remains unchanged and we are bullish. The decline has brought price to the Fibonacci 38% correction point of the rally from 109.12 to the high at 112.07. Stochastic is into the oversold zone while MACD is turning up from its low. MACD is hinting of a bullish price trend ahead. However, 20EMA remains bearish.
| Support | 110.85 | 110.50 | 110.15 |
| Resistance | 111.25 | 111.65 | 112.10 |
EUR/USD – The correction brought price to a high of 1.1615 this morning and this could be the end of the correction and a decline could resume for 1.1560 in the next few days ahead. The MACD line is approaching its zero line and a turnaround is likely to hint of a decline ahead. However, Stochastic is still rising. 20EMA is capping price at 1.1610 and if this holds, the downtrend is likely to resume.
| Support | 1.1560 | 1.1525 | 1.1490 |
| Resistance | 1.1615 | 1.1640 | 1.1685 |
XAG/USD – Silver on the 4-hourly chart may be forming an Inverse Head and Shoulder chart pattern. A confirmation would be given when price moved above the neckline of this pattern at $22.75. MACD is turning bullish with the slow line about to move over the zero line but Stochastic is already inside the overbought zone. 20EMA is bullish. Wait for the confirmation to go long on Silver.
| Support | 22.45 | 22.05 | 21.70 |
| Resistance | 22.75 | 23.15 | 23.45 |
XAU/USD – Price broke above $1764 and in the process, created a Double Bottom chart pattern breakout with a price target at $1800. There is a previous high at $1787 and these are the two likely targets for the rally as long as price stays above $1760. Stochastic is into the overbought zone while MACD remains bullish. 20EMA is also bullish and hinting of a bullish price trend ahead.
| Support | 1760.10 | 1744.75 | 1734.80 |
| Resistance | 1770.70 | 1787.15 | 1796.15 |
NZD/USD – Price is currently capped by the resistance point at 0.6945 but we think price is likely to be able to move above this resistance point to the next higher resistance point at 0.6995. Price will find it harder to move about this resistance point. Stochastic is approaching the overbought extreme and MACD remains bearish. 20EMA has turned bullish but looks weak at the moment.
| Support | 0.6920 | 0.6885 | 0.6855 |
| Resistance | 0.6950 | 0.6990 | 0.7030 |