Market Talk
– The dollar was near a four-and-a-half-year top against the yen on Tuesday, after President Joe Biden picked Federal Reserve Chair Jerome Powell to lead the central bank for a second term, driving expectations that the central bank will stay the course on tapering economic support which typically moves in step with interest rate expectations
– The news reinforced market expectations of rate rises next year when the central bank finishes tapering its emergency bond buying programme. U.S. President Joe Biden chose Powell over the other leading candidate Lael Brainard, whom markets consider to be the more dovish of the two, though Brainard will be Fed vice chair.
– Closing at 114.80 yen, the greenback is near last week’s peak of 114.97, its highest since March 2017, having jumped 0.77% on Monday on Powell’s re-appointment news. U.S. Treasury yields rose on Monday to their highest since early March 2020, which lead to a stronger US dollar and a weaker Japanese yen.
– The euro languished at 1.1234, around a 16-month low, having lost 2.8% so far this month. The common currency has been hurt by the dovish tone coming out from the European Central Bank and more recently resurgence in COVID-19 cases in Europe, which forced Austria back into a full lockdown on Monday and caused Germany to consider tighter restrictions.
– Gold prices edged up on Tuesday but hovered close to their lowest level in more than two weeks hit in the previous session, as the dollar gained on U.S. President Joe Biden’s nomination of Federal Reserve Chair Jerome Powell for a second term.
Chart Focus GBP/USD
Key Points
1. Sell GBP/USD recommendation.
2. Sell GBP/USD at 1.3405. Stop at 1.3440 and profit target at 1.3300
3. The re-appointment of Powell and a rise in US Treasury yields are both aiding the U.S. dollar.
4. Price is capped by a strong resistance point and MACD is hinting at a bearish price trend.
Fundamental Comments
1. The re-appointment of Powell reinforced market expectations of a US rate rises next year, aiding the U.S. dollar.
2. A rally in US Treasury yields is aiding the US dollar.
Technical Comments
1. Price is capped by the Fibonacci 38% correction point as well as the 20EMA line.
2. MACD remains bearish and is hinting at a bearish price trend.
Key Levels
| Support | 1.3380 | 1.3350 | 1.3300 |
| Resistance | 1.3410 | 1.3455 | 1.3485 |
Technical Overview
USD/JPY – Price made another lower low at 113.58 on Friday which completed the price correction. We are likely to see another attempt to the previous high at 114.96 in the next couple of days. This morning, price broke above 115.00 and we think the rally is likely to continue towards 115.70 as Stochastic is not overbought yet and both MACD and 20EMA are hinting of a strong bullish price trend.
| Support | 115.00 | 114.70 | 114.30 |
| Resistance | 115.50 | 115.85 | 116.15 |
EUR/USD – Despite the divergence warning from the MACD indicator and Stochastic in the oversold zone, price continues to make new low. We saw a low of 1.1225 overnight but 20EMA still bearish and is hinting at a strong bearish price trend. A strong support lies at 1.1167 and price could be on the way to test this support. Price will need to move above 1.1300 to negate the current bearish trend. We prefer to wait for confirmation of a low.
| Support | 1.1225 | 1.1170 | 1.1140 |
| Resistance | 1.1260 | 1.1300 | 1.1335 |
AUD/USD – Price reached a new lower low at 0.7211 this morning but the decline is likely to continue lower to 0.7170 over the next 24 hours. Stochastic may be in the oversold zone but 20EMA and MACD are both bearish and hinting at a bearish price trend. There may be a divergence forming from the MACD indicator. Price will need to move above 0.7230 to regain its bullish impetus.
| Support | 0.7205 | 0.7165 | 0.7110 |
| Resistance | 0.7235 | 0.7275 | 0.7305 |
XAU/USD – Price broke below Tuesday’s wide range on Friday night and we saw a decline to $1802.08 which was just below the Fibonacci 62% correction point of the rally from $1758.65 to the high at $1877.02. The Doji candlestick at the low is another sign that price may have found a support and we are likely to see a corrective rally to $1828 over the next couple of days. Stochastic is in the oversold zone but both MACD and 20EMA are hinting of a strong bearish price trend.
| Support | 1802.05 | 1789.80 | 1778.30 |
| Resistance | 1811.85 | 1822.15 | 1837.25 |
USD/CAD – We had a sell call on this pair yesterday but our view that the US dollar was in need of a correction turned out to be wrong. We lost 30 pips on this trade. Price continues to move higher. Stochastic is already deep in the overbought zone but MACD remains bullish. 20EMA is also pointing higher with a steep slope, hinting at a strong bullish price trend.
| Support | 1.2690 | 1.2660 | 1.2625 |
| Resistance | 1.2740 | 1.2770 | 1.2815 |