Market Talk
– The dollar was up on Monday morning in Asia, remaining near a 16-month high against the euro as the return of COVID-19 restrictions in Europe and talk about hastened tapering from the U.S. Federal Reserve put investors on guard.
– Bullish comments from U.S. Federal Reserve officials also boosted the U.S. currency. Fed Vice Chairman Richard Clarida and Governor Christopher Waller on Friday suggested that faster asset tapering could be appropriate as economic recovery quickens and inflation rises. This could also mean earlier interest rate hikes.
– The surging numbers of COVID-19 cases send the euro lower to 1.1274, near to its lowest since July of last year at 1.1249. The common currency has been the prime mover in markets over recent sessions as investors wager on Europe’s economy lagging well behind the U.S. recovery.
– Worries that a slowdown in Europe could hit energy demand dented crude oil, which was also in retreat over the prospect of a U.S.-led release of emergency stockpiles sending the Canadian dollar to 1.2657, its weakest level since Oct. 1.
– Gold prices stayed near last Friday’s level after prices fell to a one-week low on Friday, weighed down by gains in the dollar after Federal Reserve Governor Christopher Waller called for early tapering of economic support to help chart a tighter monetary policy.
Chart Focus USD/CAD
Key Points
1. Sell USD/CAD recommendation.
2. Sell USD/CAD at 1.2640. Stop at 1.2670 and profit target at 1.2540
3. COVID-19 restrictions in Europe and a decline in crude oil price are both likely to weigh on the Canadian dollar.
4. Stochastic and MACD have divergence warnings of a possible price high and a likely price reversal.
Fundamental Comments
1. Decline in crude oil price is likely to depress the Canadian dollar.
2. COVID-19 restrictions in Europe are likely to depress demand for crude oil and weighs on the Canadian dollar
Technical Comments
1. Stochastic has a divergence warning of a possible price high
2. MACD has a divergence warning of a possible price high.
Key Levels
| Support | 1.2625 | 1.2580 | 1.2535 |
| Resistance | 1.2665 | 1.2705 | 1.2740 |
Technical Overview
USD/JPY – Price made another lower low at 113.58 on Friday but our view remains the same as last Friday. We think the price correction could be over and we are likely to see another attempt to the previous high at 114.96 in the next couple of days. Stochastic is moving off the oversold zone and MACD has moved off its extreme. Both are hinting that price may have reached a bottom.
| Support | 113.95 | 113.55 | 113.20 |
| Resistance | 114.30 | 114.75 | 115.00 |
EUR/USD – We had a sell call on Friday at 1.1360 but price only reached a high of 1.1358 and unfortunately, our entry order was not filled. Price fell to a 16-month low of 1.1249 on Friday. We think the decline may have been completed as MACD has given a divergence warning. Stochastic is also near to the oversold zone. 20EMA is pointing down with a steep slope, hinting at a strong bearish price trend.
| Support | 1.1250 | 1.1215 | 1.1170 |
| Resistance | 1.1290 | 1.1325 | 1.1375 |
GBP/USD – Price reached a low of 1.3405 on Friday, which was just below the Fibonacci 62% correction point of the rally from 1.3352 to 1.3502. We think the price decline is completed and price should be moving higher again to 1.3555 over the next few days. However, a price move below 1.3400 would negate our bullish view. Stochastic is near to the oversold zone while MACD remains bullish. 20EMA is flat and neutral at the moment.
| Support | 1.3405 | 1.3380 | 1.3350 |
| Resistance | 1.3455 | 1.3485 | 1.3515 |
XAU/USD – Price broke below Tuesday’s wide range on Friday night and we are likely to see a decline to $1831.80 which is the Fibonacci 38% correction point of the rally from $1758.65 to the high at $1877.02. Stochastic is moving lower towards the oversold zone and MACD is bearish. Both indicators are hinting of further price decline. 20EMA is bearish and hinting of a price decline as well.
| Support | 1838.40 | 1828.50 | 1817.60 |
| Resistance | 1849.60 | 1856.80 | 1870.80 |
XAG/USD – Price reached a low of $24.47 on Friday, which was a previous resistance turned support line. As long as price stays above this support, there is a high chance that price will make another test of the high at $25.40. Stochastic is supporting this view after moving up and out of the oversold zone. MACD is also supporting this view. However, 20EMA remains bearish.
| Support | 24.50 | 24.15 | 23.75 |
| Resistance | 24.85 | 25.15 | 25.40 |