Market Talk
– The US dollar held a three-day loss against major peers and traded near a one-month low to the yen on Wednesday, as investors’ awaited highly anticipated U.S. inflation data that could guide the timing of a Federal Reserve interest rate increase.
– Global inflation readings are under close scrutiny for evidence of whether rising price pressures are accelerating or showing signs of waning. This could have a major bearing on central banks’ monetary policy which is likely to determine currencies direction.
– Data on Tuesday showed U.S. producer prices increased solidly in October, indicating that high inflation could persist amid tight supply chains related to the pandemic. China’s October factory gate prices rose at the fastest pace since 1995. Both data are hinting of inflationary pressure.
– The greenback was steady at 112.87 yen after dipping to 112.73 on Tuesday for the first time since Oct. 11. The euro was flat at 1.1591, maintaining a three-day gain that has brought it close to the month’s high of 1.1616. Sterling was stable at 1.3548, up from Friday’s low of 1.3425.
– Gold was down on Wednesday morning in Asia, retreating from a more than two-month high as the US dollar strengthened, but remained above the $1,800 mark after climbing to their highest level since Sep. 3 in the previous session.
Chart Focus EUR/USD
Key Points
1. Sell EUR/USD recommendation.
2. Sell EUR/USD at 1.1585. Stop at 1.1615 and profit target at 1.1515.
3. High inflation and interest rate differential are both likely to keep the US dollar strong.
4. Price is capped by a strong resistance and both MACD and Stochastic are hinting of a bearish price trend.
Fundamental Comments
1. U.S. data on Tuesday indicating that high inflation could persist amid tight supply chains related to the pandemic, is likely to keep the US dollar strong
2. Interest rate differential is in the US dollar favour.
Technical Comments
1. Price is capped by the Fibonacci 50% correction point as well as the 20EMA.
2. Both Stochastic and MACD have bearish crossovers, hinting of a bearish price trend.
Key Levels
| Support | 1.1545 | 1.1510 | 1.1480 |
| Resistance | 1.1585 | 1.1615 | 1.1655 |
Technical Overview
USD/JPY – We maintain our bearish view and we are expecting this decline to continue lower to 112.10 in the next few days ahead as price could be forming a bearish Flag chart pattern. 20EMA is hinting of a strong bearish price trend. MACD is bearish as well. However, Stochastic is deep inside the oversold zone. Only a price move above 113.30 would negate our bearish view.
| Support | 112.70 | 112.35 | 112.05 |
| Resistance | 113.10 | 113.55 | 114.00 |
XAG/USD – Price went into a decline after reaching a high at $24.50 on Monday. We think the decline is likely a corrective decline. A Hammer candlestick overnight might be a hint that the correction has ended and a rally to $24.82 is likely in the next 2-3 days ahead. Both MACD and 20EMA are supportive of our view. Both are hinting of a bullish price trend. Stochastic is declining but we prefer to place more weighs on the 20EMA.
| Support | 24.20 | 23.95 | 23.60 |
| Resistance | 24.50 | 24.80 | 25.20 |
GBP/USD – Price hit a low of 1.3423 last Friday and has moved up to a high of 1.3607 on Tuesday. We think 1.3423 could be a low and the current price decline off the high at 1.3607 is just a correction. Our scenario is dependent on price staying above 1.3500. MACD is bullish and supports our view. 20EMA is neutral at the moment. Stochastic is just below the overbought zone.
| Support | 1.3540 | 1.3500 | 1.3470 |
| Resistance | 1.3570 | 1.3605 | 1.3655 |
XAU/USD – Price reached a high of $1832.60 overnight, close to our target at $1834. There was a divergence warning given by the MACD indicator, hinting of a possible price high. Stochastic is also inside the overbought zone. We think price has reached a high and a price correction to $1799/1800 is likely in the next 2-3 days ahead. This price level is the Fibonacci 50% correction support zone.
| Support | 1822.30 | 1812.35 | 1799.05 |
| Resistance | 1832.60 | 1841.50 | 1852.40 |
AUD/USD – We had a buy call on this pair yesterday but our call was wrong. We lost 30 pips on this trade. Price has declined below the previous low of 0.7360 at the point of this writing and we think price is likely to decline to the Fibonacci 127% projection price target at 0.7305 in the next 48 hours. Stochastic is near to the oversold zone but 20EMA and MACD are both hinting of a bearish price trend.
| Support | 0.7345 | 0.7305 | 0.7270 |
| Resistance | 0.7380 | 0.7410 | 0.7445 |