Market Talk
– The US dollar rose as surging energy prices prompted investors to seek safe havens and on expectations the U.S. Federal Reserve will announce a tapering of its bond purchases next month.
– The inflationary impact of rising energy prices has solidified the case for the U.S. Federal Reserve to announce a tapering of its massive bond buying programme in November, raising the possibility of interest rate hikes in late 2022; even though jobs data published last Friday missed expectations.
– The yen hit a fresh three-year low on Tuesday, sliding to 113.48 per dollar in early Asia trade, its weakest since December 2018 as traders wagered surging energy prices, rising US bond yields and expectation of a US rate hike next year would drive Japan’s demand for dollars.
– The pound rose to a two-week high of 1.3673 on Monday before easing back slightly to last change hands at 1.3586. The euro stayed pinned near its lowest levels in a year, fetching 1.1550 while the Aussie dollar hit a one-month high on surging energy prices and a bounce in iron ore.
– Gold prices edged lower, weighed by a rallying dollar on bets the U.S. Federal Reserve would not put off stimulus tapering, although stagflation expectations limited losses in the inflation-hedge bullion.
Chart Focus USD/JPY
Key Points
1. Buy USD/JPY recommendation.
2. Buy USD/JPY at 112.70. Stop at 112.30 and profit target at 113.80
3. Surging energy prices and rising US bond yields are both likely to aid the US dollar.
4. Price is likely to find support at the Fibonacci 38% and 20EMA point with MACD and 20EMA hinting of a bullish price trend.
Fundamental Comments
1. Surging energy prices is likely to lead to inflation which could lead to a US rate hike.
2. Rising Treasury yields are aiding the US dollar against the yen
Technical Comments
1. Price is likely to be supported by the 20EMA and Fibonacci 38% correction points in a corrective decline.
2. MACD and 20EMA are both hinting of a bullish price trend.
Key Levels
| Support | 113.15 | 112.85 | 112.40 |
| Resistance | 113.50 | 113.90 | 114.10 |
Technical Overview
USD/CAD – Price reached a low of 1.2445 this morning but there were no divergence warning from either MACD or Stochastic. We think price is likely to make another new low in the next couple of days ahead. Stochastic is weak in the oversold zone but MACD remains bearish. 20EMA is pointing lower and is hinting of a bearish price trend. Price will need to move above 1.2570 to avert the bearish trend.
| Support | 1.2445 | 1.2420 | 1.2390 |
| Resistance | 1.2500 | 1.2535 | 1.2570 |
EUR/USD – Price had reached a low of 1.1528 last Wednesday and this low was accompanied by divergence warnings from both Stochastic and MACD indicator, hinting of a possible price low in the making. However, price failed to above 1.1585 and has been caught in a range of 1.1528 to 1.11585 since last Wednesday. MACD and 20EMA are both neutral while Stochastic is in the middle of its range. We could face another day in the above range. Watch the breakout for clues.
| Support | 1.1550 | 1.1525 | 1.1490 |
| Resistance | 1.1585 | 1.1615 | 1.1645 |
GBP/USD – Price broke above 1.3660 yesterday morning, negating our bearish view. However, this turns out to be a false breakout. After reaching a high of 1.3673, price has gone back into the range again. Stochastic is moving towards the oversold zone but MACD is flat and neutral at the moment. 20EMA is also flat and neutral. We think price is likely to range and we will have to watch the breakout for clues.
| Support | 1.3590 | 1.3550 | 1.3500 |
| Resistance | 1.3630 | 1.3675 | 1.3715 |
XAU/USD – Price broke above the range’s high of $1770.35 on Friday after a disappointing NFP data. Price reached a high of $1781.20 but has fallen inside the previous week’s range again. Price may have found support at $1750.00. Stochastic is turning up from the oversold zone while MACD has turned bullish. 20EMA is neutral. We may see another test of $1781.20 again in the next few days if price is able to stay above $1750.
| Support | 1757.55 | 1745.00 | 1734.80 |
| Resistance | 1766.85 | 1781.20 | 1790.55 |
EUR/GBP – We had a sell recommendation on this pair yesterday, but our call was wrong. We lost 15 pips on this trade. Stochastic continues to rise but MACD remains bearish. MACD is also starting to warn with divergence of a possible price low as well. 20EMA is flat but capping price at 0.8500 at the moment. A move above 0.8500 would confirm a Double Bottom chart pattern, with a price target at 0.8530.
| Support | 0.8470 | 0.8450 | 0.8415 |
| Resistance | 0.8500 | 0.8530 | 0.8550 |