Market Talk
– The dollar traded near a two and a half week high to major peers on Monday as quickening inflation data in the United States on Friday boosted the case for earlier Federal Reserve interest rate hikes.
– U.S. data released on Friday challenged the Fed’s position that current inflationary pressures are temporary and will ease soon. The personal consumption expenditures price index continued a run of inflation at levels not seen in 30 years.
– Monetary policy in the United States and elsewhere is in sharp focus this week, with the Federal Open Market Committee widely expected to announce a tapering of stimulus on Tuesday. The Reserve Bank of Australia also decides policy on Tuesday, with markets challenging the central bank’s contention that rates won’t rise until 2024.
– The greenback approached a one and a half week top against the yen after the safe-haven Japanese currency weakened after a strong showing by the ruling party in weekend elections reduced political uncertainty. The U.S. currency bought 114.23 yen on Monday morning.
– Gold was up on Monday morning in Asia as US data showing persistent inflation fueled bets. However prospect of a sooner-than-expected policy tightening due to inflation by the U.S. Federal Reserve capped the yellow metal’s gains.
Chart Focus EUR/AUD
Key Points
1. Sell EUR/AUD recommendation.
2. Sell EUR/AUD at 1.5395. Stop at 1.5425 and profit target at 1.5315
3. Expectation of interest rate and current yields both favour the Aussie dollar against the Euro.
4. Price is likely to be capped by a strong resistance with both 20EMA and MACD hinting of a bearish price trend.
Fundamental Comments
1. Expectation that ECB is likely to hike rate later than the RBA is likely to weigh on the Euro.
2. Interest rate differential is in the Aussie dollar favour.
Technical Comments
1. Price is capped by the 20EMA as well as a support turned resistance line.
2. MACD is bearish and is hinting of a bearish price trend.
Key Levels
| Support | 1.5370 | 1.5335 | 1.5300 |
| Resistance | 1.5395 | 1.5420 | 1.5480 |
Technical Overview
USD/JPY – Price has rebounded from the low of 113.25 and is currently testing the previous high at 114.31. A break of this high is likely to send price to the resistance at 114.70. However, if price is unable to move above 114.31, we are likely to see a decline back to 113.25. MACD and 20EMA are both favouring a move towards 114.70 while Stochastic is hinting of a limited upside at the moment.
| Support | 114.00 | 113.70 | 113.25 |
| Resistance | 114.35 | 114.70 | 115.00 |
EUR/USD – Price had reached a high of 1.1692 on Thursday but fell to a low of 1.1534 by the close of Friday’s trading. The bearish trend may have resumed again and we could be on the way to 1.1505 again in the next few days. Resistance lies at 1.1580. Stochastic is declining but is close to the oversold zone. MACD and 20EMA are both hinting of a strong bearish price trend ahead. We prefer the downside.
| Support | 1.1525 | 1.1500 | 1.1450 |
| Resistance | 1.1555 | 1.1585 | 1.1625 |
GBP/USD – Price broke below the support at 1.3709 on Friday and had declined to a low of 1.3665 this morning. The overhead resistance at 1.3700 is likely to cap any rally today. We see price declining further to 1.3570 in the next couple of days ahead. Stochastic continues to decline and is hinting of a bearish price trend. MACD and 20EMA are both hinting of a strong bearish price trend ahead. Only a move above 1.3710 would negate our bearish view.
| Support | 1.3665 | 1.3620 | 1.3570 |
| Resistance | 1.3705 | 1.3765 | 1.3800 |
XAU/USD – Price broke the range low at $1782.25 on Friday and moved to a low of $1771.93. There is a resistance at $1790.80 as well as the 20EMA line around this area. If price fails to move above this resistance, the immediate outlook is a decline to $1766.45. The downside could be limited as Stochastic is near to the oversold zone. MACD is also hinting with divergence of a possible price low.
| Support | 1778.80 | 1766.45 | 1750.00 |
| Resistance | 1790.80 | 1798.85 | 1813.65 |
USD/CNH – We had a sell call on Friday which turned out to be wrong. We lost 115 pips on this trade. Price had moved higher to 6.4102 but the high as capped by the rising upper channel line. We think price may have reached a high and a decline back to the lower end of the channel at 6.3820 is likely in the next few days. Stochastic is in the overbought zone but both 20EMA and MACD remain bullish.
| Support | 6.3950 | 6.3795 | 6.3685 |
| Resistance | 6.4235 | 6.4395 | 6.4640 |