FX Commentary – Crude Oil’s Rally Fuelled Inflation And Earlier Rate Hike Fear

Market Talk
– The safe-haven US dollar held close to multi-month high against its major peers on Thursday as a surge in energy prices fuelled worries that inflation could crimp economic growth while also prodding the Federal Reserve to act sooner to normalize policy.

– Investors also remained on edge regarding U.S. debt ceiling negotiations, even as the top U.S. Senate Republican Mitch McConnell said his party would allow an extension of the federal debt ceiling into December, a move that would head off a historic default with a heavy economic toll.

– The greenback was steady at $1.1558 per euro after strengthening to 1.1529 on Wednesday for the first time since July of last year. The Japanese yen was mostly flat at 111.37 per dollar, near the middle of its range of the past week and a half.

– Crude oil prices hit a seven-year high overnight before easing from its recent gains, sending the Canadian dollar higher to 1.2575. The Aussie dollar edged up to 0.7280 while the kiwi climbed higher to 0.6917.

– Gold prices were flat on Thursday as the dollar held firm, as investors moved to the sidelines ahead of a U.S. payrolls report that is expected to provide clues on the Federal Reserve’s tapering timeline.

Chart Focus GBP/USD

Key Points

1. Sell GBP/USD recommendation.

2. Sell GBP/USD at 1.3590. Stop at 1.3625 and profit target at 1.3430

3. A surge in energy prices, worries over UK fuel shortage and US debt ceiling are likely to aid the safe haven US dollar.

4. A strong resistance point coupled with bearish Stochastic reading could be a hint of a bearish price trend ahead.

Fundamental Comments

1. A surge in energy prices fuelled worries that inflation as well as fuel shortage could crimp UK economic growth

2. Worries over U.S. debt ceiling negotiations are likely to keep risk sentiment cautious and aid the safe haven US dollar.

Technical Comments

1. Price is capped by the 20EMA line as well as the Fibonacci 50% correction point.

2. Stochastic continues to move lower and is hinting of a bearish price trend ahead.

Key Levels


Technical Overview

USD/JPY – We had a buy call at 111.10 which was filled on Tuesday. Yesterday we had left stop at 111.10 and profit order at 112.00. Our view remains unchanged from yesterday. We will keep the orders for today. Stochastic continues to rise and is moving towards the overbought zone. MACD is bullish and is hinting of a bullish price trend ahead. 20EMA is also bullish.


EUR/USD – Price broke the 1.1560 support level and reached a low of 1.1528. This low was accompanied by divergence warnings from both Stochastic and MACD indicator, hinting of a possible price low in the making. Stochastic is moving higher after a bullish crossover in the oversold zone. However, both MACD and 20EMA remains bearish. If price is unable to move above 1.1585, there could be another test of 1.1528 and 1.1505 in the next few days.


XAG/USD – Silver on the 4-hourly chart has been trying to break out of an Inverse Head and Shoulder chart pattern in the past few days. We are likely to see a breakout above the neckline today at $22.70. The target of this chart pattern lies at $24.00. Stochastic is rising towards the overbought zone. MACD and 20EMA are both bullish and hinting of a bullish price trend ahead.


XAU/USD – Price has been trading in a sideways rectangle pattern since the beginning of this week. The boundaries lie at $1770.35 and $1745.70. Price is likely to remain in these boundaries until there is a breakout. Stochastic is rising and is hinting of a bullish price trend. MACD and 20EMA are bullish and hinting of a bullish price trend as well. We prefer a breakout to the upside.


NZD/USD – Price hit a high of 0.6924 this morning, missing our buy entry price at 0.6925. Our view remains the same as yesterday. We are bearish and we are looking for a decline to 0.6855 in the next couple of days ahead. MACD is hinting of a bearish price trend but Stochastic is starting to turn up from the oversold zone. However, 20EMA remains bearish. Only a move above 0.6990 would negate our bearish view.


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