Market Talk
– The dollar languished near its weakest level in a month against major peers on Friday hurt by a stronger euro as traders bet on earlier European interest rate hikes and an equity rally sapped demand for safer assets.
– U.S. gross domestic product increased at a 2% annualized rate last quarter, the slowest since the second quarter of 2020 when the economy was beset by COVID-19 pandemic restrictions, but a better labour report helps to offset the GDP impact.
– The euro was flat after rising as high as $1.1692 overnight after ECB President Christine Lagarde acknowledged higher inflation but pushed back against market bets that inflationary pressures would trigger an interest rate hike as soon as 2022.
– Sterling was flat at 1.3792 as it continued to fluctuate near a one-month high reached last week. The pound has been buffeted recently by speculation over whether the Bank of England would proceed with an interest rate hike at its meeting next week.
– Gold was down on Friday morning in Asia, but is set for a third consecutive weekly gain. Retreating U.S. bond yields which is set for their biggest weekly decline since early September 2021 and a weaker US dollar helped the yellow metal.
Chart Focus USD/CNH
Key Points
1. Sell USD/CNH recommendation.
2. Sell USD/CNH at 6.3885. Stop at 6.3995 and target at 6.3685
3. A decline in US bond yields and a slowdown in the US economy are both likely to weigh on the US dollar.
4. Price could be forming a Flag pattern and Stochastic is re-enforcing the message with a bearish hint.
Fundamental Comments
1. A decline in US bond yield has lessened the attractiveness of the US dollar against the Chinese yuan
2. A slowdown in the US economy is likely to delay a US rate hike which is likely to weigh on the US dollar.
Technical Comments
1. Price could be forming a flag pattern which is hinting of a possible decline.
2. Stochastic is declining and is hinting of further price declines ahead.
Key Levels
| Support | 6.3795 | 6.3685 | 6.3520 |
| Resistance | 6.3900 | 6.4235 | 6.4395 |
Technical Overview
USD/JPY – On the 4-hourly chart, price has been capped by the 20EMA and as long as price is unable to move above the 20EMA line at 113.70 currently, we are likely to see a test of the price support at 113.05 in the next few days. Stochastic is near to the oversold zone but MACD remains bearish. 20EMA is also bearish and hinting of a bearish price trend. Above 114.00 could mean price has found a low.
| Support | 113.35 | 112.95 | 112.60 |
| Resistance | 113.70 | 114.00 | 114.35 |
EUR/USD – Price rallied to a high of 1.1692 after ECB’s Lagarde acknowledged inflation worries but the rally may be overstretched. We are likely to see a price correction to 1.1640 as Stochastic is in the overbought zone. However, MACD and 20EMA are both bullish and is hinting of a bullish price trend. We would recommend buying the correction towards 1.1640 for another rally to 1.1700 in the next few days ahead.
| Support | 1.1655 | 1.1625 | 1.1585 |
| Resistance | 1.1695 | 1.1720 | 1.1755 |
GBP/USD – Price rallied to a high of 1.3815 overnight but we think this rally is likely to continue higher towards 1.3835 within the next 24 hours. A break of resistance at 1.3835 is likely to send price higher to 1.3920. Stochastic continues to rise and 20EMA is hinting of a price rally ahead. MACD remains bearish but we think this could be a sign of a correction instead of a bearish trend.
| Support | 1.3765 | 1.3715 | 1.3670 |
| Resistance | 1.3800 | 1.3835 | 1.3890 |
XAU/USD – Gold continued to move within last Friday’s range of $1782.25 to $1813.65. Overnight price tested the high at 1810.30 but was unable to sustain. Price has declined below $1800 and we think the decline is likely to continue to $1782. After failing near the high, price is likely to test the low again. Stochastic is declining after a bearish crossover near to the overbought zone. MACD and 20EMA have both turned bearish and is hinting of a price decline.
| Support | 1792.15 | 1782.25 | 1766.45 |
| Resistance | 1801.25 | 1813.65 | 1823.05 |
AUD/USD – We had a sell call yesterday at 0.7510 which was stopped out when price moved above our stop price at 0.7540. We lost 30 pips on this trade. Price may have reached a high at 0.7555 but MACD looks weak and a potential divergence could be forming. Stochastic is also inside the overbought zone, hinting of limited upside. However, 20EMA remains bullish. We would prefer to stand aside and wait for better trading opportunities.
| Support | 0.7520 | 0.7480 | 0.7450 |
| Resistance | 0.7555 | 0.7570 | 0.7600 |