FX Commentary – US Dollar In Decline As Risk Sentiment Improves

Market Talk

– The dollar was heading for a second week of declines on Friday as sentiment stayed tilted towards riskier assets, boosted by news that beleaguered developer China Evergrande Group has supplied funds to pay interest on a U.S. dollar bond, averting a default.

– On Friday, benchmark 10-year U.S. Treasury yields were at 1.6872%, slightly off from Thursday’s multi-month high of 1.7%, as markets continue to prepare themselves for an announcement by the Federal Reserve that it will start to wind down its massive bond buying programme, which is widely expected for November.

– The RBA said on Friday it had stepped in to defend its yield target for the first time in eight months, spending A$1 billion to dampen an aggressive bonds sell-off putting a halt to the Aussie recent surge.

– The British pound paused for breath at 1.3798, off a month peak hit earlier in the week, carried by growing expectations of an interest rate hike by the BoE to combat rising inflationary pressures. The yen wobbled within sight of its multi-year lows, with one dollar worth 114.01 yen, compared with 114.69 earlier in the week.

– Gold was up on Friday morning in Asia, and was poised for its second weekly gain. A declining US dollar provided some relief for the yellow metal against higher Treasury yields and increasing bets that central banks globally could soon begin asset tapering

Chart Focus USD/CNH

Key Points

1. Sell USD/CNH recommendation.

2. Sell USD/CNH at 6.3950. Stop at 6.4095 and profit target at 6.3690

3. An improvement in risk sentiment and a decline in crude oil prices are weighing on the safe haven US dollar.

4. Price is capped by the 20EMA with MACD hinting of a bearish price trend.

Fundamental Comments

1. An improvement in risk sentiment, boosted by news that Evergrande has averted a default is weighing on the safe haven US dollar.

2. A decline in crude oil price has provided some relief to inflationary pressure, averting an earlier than expected US rate hike.

Technical Comments

1. Price is capped by the 20EMA for the past 2 days and could be heading lower.

2. MACD is bearish and is hinting of a bearish price trend

Key Levels


Technical Overview

USD/JPY – Yesterday, we had a sell recommendation at 113.95, which was filled when price reached a high of 114.20. Our view remains unchanged and we would recommend placing stop at 114.30 and profit target at 113.05. Stochastic is near to the oversold zone but MACD remains bearish and is hinting of a bearish price trend. 20EMA is also bearish and hinting of a bearish price trend.


EUR/USD – We had a buy order on Wednesday at 1.1625 which was filled. Yesterday, we had shifted stop to cost at 1.1625 while keeping profit order at 1.1680. Unfortunately, our stop was triggered when price declined to 1.1618 overnight. We are out of this position at cost. Stochastic is moving lower and hinting of a bearish price trend. 20EMA has turned bearish but MACD remains bullish. We will stay aside for today to wait for better trading idea.


GBP/USD – Price reached 1.3833 for a second time on Wednesday and in the process, price may be forming a Double Top chart pattern. If price is unable to move past 1.3835, we are likely to see a price decline lower to 1.3710. A move above 1.3835 will likely see price test 1.3910. Price is currently sitting on the 20EMA line at 1.3785. The reaction at the 20EMA line is likely to determine the next direction of this pair.


XAU/USD – Price was supported by the 20EMA at $1778 and price has since moved higher. We are likely to see price moved above the previous high at $1789.15 to $$1796/$1800 in the next 24 hours. Stochastic has a bullish crossover and is rising. 20EMA is rising and hinting of a bullish price trend. MACD is also bullish and hinting of a bullish price trend ahead. A move below $1774 would negate our bullish view.


XAG/USD – Price managed to stay above the previous resistance turned support point at $23.60 on Wednesday and we have seen a price rally that brought price to $24.47 yesterday. Last night, price was able to stay above the 20EMA and with MACD bullish; there is a chance that we will see a test of $24.47 again before a decline back to $23.60 next week. A move below $23.90 would negate our bullish view for the next 48 hours.


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