Market Talk
– The dollar traded near a two and a half week high to major peers on Tuesday after posting its biggest daily rise in more than four months in the previous session as quickening inflation in the United States boosted the case for earlier Federal Reserve interest rate hikes.
– A 4.4% surge in the government’s index of core personal consumption expenditures – the Fed’s preferred inflation measure – solidified market expectations for a rates lift-off around the middle of next year, leading to a strengthening of the US dollar overnight.
– The Aussie dollar weakened on Tuesday after the country’s central bank stressed that inflation was still too low, although it also omitted its previous projection that rates were unlikely to rise until 2024 and dropped a key target for the April 2024 government bond.
– The US dollar approached a one and a half week top to the yen after the safe-haven Japanese currency weakened on a strong showing for the ruling party in weekend elections. The strong showing reduced political uncertainty dampening the safe haven yen.
– Gold prices eased on Tuesday as a firmer dollar made bullion less appealing for the yellow metal, while investors eyed a pivotal U.S. Federal Reserve policy meeting amid growing concerns over a sustained bout of inflation.
Chart Focus EUR/USD
Key Points
1. Sell EUR/USD recommendation.
2. Sell EUR/USD at 1.1615. Stop at 1.1645 and price target at 1.1550
3. Inflationary data and a perception that the Fed is ahead of the ECB is likely to keep the US dollar strong against the Euro.
4. Price is likely to face a strong resistance with MACD and Stochastic hinting of a bearish price trend.
Fundamental Comments
1. US data showing high Inflation has boosted the case for earlier Federal Reserve interest rate hikes.
2. Expectation of a tapering two days later is likely to boost the US dollar especially with ECB not ready to taper as yet.
Technical Comments
1. Price is facing a strong resistance provided by the 20EMA as well as the Fibonacci 50% correction point.
2. MACD remains bearish and is hinting of a bearish price trend while Stochastic is weak and hinting of a bearish price trend as well.
Key Levels
| Support | 1.1580 | 1.1540 | 1.1505 |
| Resistance | 1.1615 | 1.1650 | 1.1690 |
Technical Overview
USD/JPY – Price broke above the previous high at 114.31 but moved only to a high of 114.44 on a false break. A reversal in trend has sent price to a low of 113.59. We think price is likely to continue lower to 113.25 in the next 24 hours to complete the decline. Stochastic is declining and 20EMA has turned bearish. Both are hinting of a bearish price trend ahead. MACD could be about to turn bearish soon.
| Support | 113.25 | 112.95 | 112.50 |
| Resistance | 113.75 | 114.00 | 114.35 |
EUR/AUD – Yesterday, we had a sell call on this pair but price moved higher and triggered our stop loss. We lost 30 pips on this trade. The decision by the RBA to remain dovish has also weakened the Aussie against the Euro. Price has moved up to 1.5518 currently and we are expecting a price move to 1.5600 in the next 48 hours. Stochastic continues to rise and 20EMA has turned bullish. Both are hinting of a price rally ahead.
| Support | 1.5500 | 1.5465 | 1.5420 |
| Resistance | 1.5545 | 1.5595 | 1.5640 |
GBP/USD – Price was capped at 1.3700 and we have seen a price decline to current 1.3641. We are expecting the decline to continue lower to 1.3570 in the next few days. Stochastic is already inside the oversold zone, hinting of a possible limited downside. However, MACD and 20EMA are both hinting of a bearish price trend ahead. Only a price move above 1.3710 would negate our bearish view for the next few days.
| Support | 1.3635 | 1.3600 | 1.3570 |
| Resistance | 1.3670 | 1.3700 | 1.3745 |
XAU/USD – The rally off last Friday’s low at $1771.75 has been capped for the past two days by the Fibonacci 62% correction point of the decline from $1810 to the low at $1771. Inability to move above this Fibonacci resistance is likely to send price down to $1771 again. If price is able to move above this resistance, it is likely to advance to $1810. We would recommend watching this Fibonacci resistance point for clue to the next price direction.
| Support | 1786.60 | 1771.95 | 1760.10 |
| Resistance | 1795.60 | 1810.30 | 1823.05 |
AUD/USD – Price fails to move above 0.7555, which was last week’s high and we are likely to see a decline to 0.7452 to test the neckline of a Double Top chart pattern. This reversal pattern was formed last week and it was accompanied with bearish divergence warning from MACD as well. A break of 0.7452 is likely to send price down to the chart pattern price target at 0.7320. Stochastic has a bearish crossover and MACD is bearish. 20EMA is also hinting of a bearish price trend.
| Support | 0.7465 | 0.7425 | 0.7380 |
| Resistance | 0.7500 | 0.7555 | 0.7600 |